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us stock market, trend trading stock
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6/19/02 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS:
Targets hit Wednesday: ATH; NOC; TECD
Buy alerts issued: ATMI
Trailing stops issued: SVM; IRIC
Stop alerts issued: MDC; SSFT
You can sign up for Technical Trader alerts 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:
- Indexes turn lower at resistance once again as volume rises.
- Distribution may not mean rally attempt is over, but poor internals and stocks rolling over as well indicate the rally attempt is over.
- Subscriber Questions
Again that familiar action.
Tuesday's doji's at resistance indicated a change. The negative news after the close won out over the ORCL and JBL positive results, and the futures were way down. The selling on the open was not intense, however. Indeed, after the initial selling down to support levels in the first half hour the indexes rallied higher as anticipated in our pre-market alert. The indexes and stocks ran into the 18 day MVA on the high, however, and they turned down. We saw an intraday head and shoulders forming and issued an alert to that effect and to get ready for more selling. Sure enough the pattern completed and the indexes sold even lower.
Volume was moderate, but then it accelerated in the last hour. In the end both Nasdaq and NYSE volume were higher, indicating that the sellers were back in the market and were once again overtaking buyers early in a rally attempt. The blame was set upon more Middle East attacks and retaliations, corporate antics, and the fact that the ORCL earnings were the product of cost cutting and not any upswing in corporate spending. No real news there, but the media has to find a cause to blame. Issues such as these are not the cause but just reasons to go back to the trend that was already in place. Notice how the market overlooks bad news when it is in a strong rally and magnifies bad news when it is in a downtrend? An email from a subscriber alluded to this fact and today was a case in point.
Distribution early in a rally attempt is usually the kiss of death.
It is not always the case, but distirubiton early in a rally attempt usually spells the end of that rally. Wednesday selling was not huge, but it did rise and down volume crushed up volume. While it usually means the end of a rally attempt, it is not always the case. The February to March rally suffered distribution right off the bat, but it managed to overcome successive distribution days on the test of the reversal and then power ahead. The distribution made the rally suspect or looked at another way, weakened the move: if sellers were ready to sell right off the bat, you knew they were going to make another attempt at it not too far down the road. Ultimately the rally failed after another week of gains.
Thus the reversal and rally attempt is not dead, it is just limping around with an arrow in its knee. Volume may not have been wicked, but it was up. The internals, however, were rather nasty. Decliners led on the Nasdaq 2.2 to 1. Down volume led on the NYSE 3 to 1. Nasdaq down volume was a crushing 9 to 1. Some traders described it as a lack of bids, but the rising volume on selling shows there were more sellers in the market. The poor internals show the bias was very negative.
THE MARKET
There is not much to add to the above: the indexes shook off some bad news early, rallied back, but then stalled at resistance only to fall back again. This time volume rose on the selling when it had been declining on the rally up to that level. That is the opposite price/volume action you want is you are looking for the market as a whole to continue a rally. While several stocks are continuing to move higher on the economic recovery and just the fact that they have good sales and earnings, the large caps started to roll back, led by the Nasdaq 100 and the SOX. The small and mid-caps were not immune as they too sold over 1% each. Still, for upside action it is hard to beat the smaller issues as we continue to see.
SENTIMENT INDICATORS
VIX: 29.71; +2.38. Back up toward the upper end of the 'normal' range but well below the intraday spike to 36 last Friday and the 50 or better that usually signifies a clear bottom.
VXN: 55.24; +0.69. Hit 56.86 on the high but could not hang on and build higher even as the Nasdaq sold lower as the session wore on. Not where it needs to be, i.e., well into the seventies and preferably into the eighties.
Put/Call Ratio (CBOE): 0.90; -0.06. The selling could not push the ratio higher; obviously there is more work needed on the sentiment side of the equation.
Nasdaq
Stats: -46.13 points (-2.99%) to close at 1496.83
Volume: 1.72B (+8.71%). As noted, not huge reversal volume, but a solid increase in trade as the index rolled back over. Distribution is distribution.
Up Volume: 168M (-522M)
Down Volume: 1.531B (+654M). Wiped out up volume over 9 to 1.
A/D and Hi/Lo: Decliners led 2.2 to 1. A hefty jump in decliners. No one wanted tech stocks today.
Previous Session: Decliners led 1.2 to 1
New Highs: 75 (+7)
New Lows: 145 (+63)
The Chart: http://www.investmenthouse.com/cd/$compq.html
A doji Tuesday and a gap lower today to the 10 day MVA that an early rally attempt could not overcome. After breaking above the steep 10 day MVA downtrend, the Nasdaq found resistance at the next point in continuing downtrends, the 18 day MVA (1561.15). The rally is still technically alive as it has not undercut the low on the reversal session last Friday, but it was dealt a blow with the selling volume increasing. At least it was not above average volume on the selling (now THAT is a weak silver lining), but in continuing downtrends, selling can start off quietly and then ramp up quickly. The index closed at potential support at 1500, a point it traded around frequently last week, but we see it falling below that level tomorrow. If it closed substantially below 1500 (something that it did not do last week) on continued rising volume, techs are most likely in for a test of 1420 and then the low at 1387. It needs to do this and it needs to do it with a good plunge below that level to spike up those sentiment indicators that were better but still well off where they need to be.
Dow/NYSE
Stats: -144.55 points (-1.49%) to close at 9561.57
Volume: 1.279B (+8.52%) . A similar rise in trade as on the Nasdaq. Distribution early in the rally attempt.
Up Volume: 313M (-323M)
Down Volume: 935M (+404M). 3 to 1 on the down side.
A/D and Hi/Lo: Decliners led 1.67 to 1. Not as bad as techs.
Previous Session: Advancers led 1.07 to 1
New Highs: 120 (+23)
New Lows: 62 (+24)
The Chart: http://www.investmenthouse.com/cd/$indu.html
The Dow tried a run at 9750, but it could not get past the 18 day MVA (now at 9719.77; at 9738 at the start of trading) on the high at 9733.39. It turned over and sold off on stronger though still below average volume. It was distribution, but it was not massive selling. The index has some pretty solid support at 9500 that has held on the close (a quick dip to 9250 last Friday excluded). This will be an interesting test of that level. Just 72 points lower, 9500 is also just above the March down trendline near 9450. If volume continues to rise we expect an undercut of this support. That would be a significant breach, and it would help to get that negative sentiment up; breaches of important support do that. A breach of the September lows by the Nasdaq and S&P 500 along with a big move below 9500 would increase the anxiety.
S&P 500:
Same action as on the other indexes with a turn down at the 18 day MVA (1038.77) and then selling on rising volume. The close left it below some support at 1025, and right at the first March down trendline (1017). Below that trendline there is not a lot of support on down to 1000, the point of its first breather after reversing off the lows in September 2001. The September 2000/May 2001 down trendline is just above 1000 at 1004. Then the bottom channel of the March down trendline is at 989. That is about all there is before the September 2001 low.
Stats: -17.15 points (-1.65%) to close at 1019.99
NYSE Volume: 1.279B (+8.52%)
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
After hours brought no better news with GENZ warning and more allegations of wrongdoing at IMCL. Even MU and RMBS are getting scrutiny from the SEC. Nothing severe, just more of the same.
Today's reversal at the 18 day MVA on higher volume looks to be a call to resume some selling. There are two big levels of support that could help hold the line: 1500 on Nasdaq and 9500 on the Dow. Those have been solid support (at least on the close) on the last round of selling. The indexes will certainly tarry there a bit, but as we have seen again and again, support levels in a strong downtrend tend to be points where indexes and stocks catch their breath for the next move lower. If they can muster support at that level and rally on strong volume, you have follow through.
Not many patterns to lead the way in the big indexes, however, and that has ultimately killed off rally attempts with that massive overhead supply that simply cannot find enough demand to hold it. Stocks ultimately have to land in hands that want to hold them for the long term. Right now most are changing hands fast still, the proverbial hot potato, as few think stocks are at a level that represents a value to hold for the long term. Small caps and mid-caps are the exception as they are still receiving funds for buying. They have not been clear sailing of late either, however. Still, money is moving into these smaller issues; there is demand for these stocks overall and we continue to see good patterns emerge that show accumulation.
For tomorrow the economic news resumes with the current account (expected to balloon), jobless claims, and the leading economic indicators (they look down the road 6 months, but they seem to have lost credibility even though they showed the recovery to come). The Philly Fed report is also tossed in there. This is not market shaking; the most impact would come from very weak numbers.
We anticipate the selling to resume in the downtrend as indicated by today's reversal on volume that is starting to rise on the selling after declining on the gains in the market. There is that support at 1500 and 9500 that we will be watching closely how those levels are handled. The overall trend remains down, however, and in the big picture at least the Nasdaq and the S&P 500 are going to, indeed need to, fully test and even undercut the September lows. They could head much lower than that as they lead the way down for the Dow that really has not suffered much of a bear market. Sideways action without a significant move lower does not equal a bear market. We will continue to pick up some choice downside action as we continue to play some solid sectors higher with the right plays (pre-splits and breakout tests, etc.). As we have seen, they are out there and continue to perform even as the overall market flails about.
Support and Resistance
Nasdaq: Closed at 1496.83
Resistance: 18 day MVA (1561.15). May low is at 1560.20, combining with resistance at 1550, a level not totally cleared. 1600 combines with the second March down trendline at 1598. Then the following March to April trendline now at 1630, the 50 day MVA (1642.30), and the February low at 1700.
Support: 1500 is the next logical support level. 1460 is some support. 1415is the bottom channel of the May down trendline and the bottom channel of the May downtrend. After that is the September low at 1387.06.
S&P 500: Closed at 1019.99
Resistance: The 18 day MVA (1038.77). The second March down trendline at 1050. The May low at 1048.96. 1060 offers minor resistance from previous prices. Then the February lows at 1074.
Support: The first March down trendline is at 1017. 1004 is the September 2000/May 2001 down trendline. Below that is the bottom of the March downtrend channel at 993. The September low is 944.75.
Dow: Closed at 9561.57
Resistance: The January and February lows at 9620. 9750 and the 18 day MVA (9719.77). The April and May lows at 9800 to 9811. The 200 day MVA (9842.64). The September 2000/February 2001 down trendline is at roughly 9935 and the 50 day MVA at 9915.88. Then 10,100, followed by 10,250 to 10,300.
Support: 9500 is the bottom of the shelf of support from 9500 to 10,100. The March down trendline is at 9450. 9250 rose up from nowhere to turn the Dow Friday; possible support there. Then 9000 to 9100. There is a rest stop at 8500. The September low is 8062.
Economic Calendar
6-18-02
CPI, May (8:30): 0.0 actual versus +0.1% expected and 0.5% prior.
CPI, core (8:30): +0.2% actual and +0.2% expected and 0.3% prior.
Housing starts, May (8:30): +11.6% to 1.733M actual versus 1.600M expected and 1.53M prior.
Building permits, May (8:30): 1.674M actual versus 1.620M expected and 1.631 prior.
6-20-02
Current account, Q1 (8:30): $-107.5B expected versus -$98.8B prior.
Trade balance, April (8:30): -$32.1B expected versus -$31.6B prior.
Intial jobless claims (8:30): 38kK expected versus 390K prior.
Leading Economic Indicators, May (10:00): 0.2% expected versus -0.4% prior.
Philadelphia Fed, June (12:00): 10.6 expected versus 9.1 prior.
Treasury Budget, May (2:00): -$60,0B expected versus -$27.9B prior.
SUBSCRIBER QUESTIONS
Q: What is the date for the next FOMC meeting?
A: June 25 and 26 is the next one. Then none until August 13 and September 24, both 1-day meetings. We expect a no action at these meetings.
Q : I BELIEVE EMLX IS GOING TO THE BIG BOARD (6/24/02) DO YOU CONSIDER THIS A + OR A - FOR THE COMPANY... ENJOY YOUR DAILY VERY MUCH. THANK YOU.
A: Many stocks have moved to the 'big board' from the Nasdaq in the past with reasons ranging from wanting better exposure to lessening volatility. IOM made the move a few years back in order to limit volatility. Jabil Circuit did the same thing for the same reason. Hard to say that was the result as the trend in that stocks turned down shortly thereafter. As for EMLX we are sorry to see it leave the Nasdaq. One of the things we like about EMLX is its volatility. It can move $5 with ease making it a great trading stock; lower volatility would impact that feature of the stock from a trader's perspective.
Q: What exactly is a DOJI and what is it to the big picture?
A: There are several types of charts: close line, bar, candlestick. Candlestick charts originated in ancient Japan in the rice trade. We like them because they show a lot of information, particularly momentum, with a glance. A doji is one of ths patterns a stock or an index can form in a session. A doji occurs when the opening price and the closing price are very close to one another. That means basically that the bulls and bears were at a draw for the session. Where it occurs is key. At the top of a rally it shows that sellers have caught up with the buyers and they are evenly matched. That can mean the rally is going to stall out or undergo some profit taking. On the bottom of a selloff it indicates that the buyers have caught up with the sellers; it can indicate that a change of direction back up is possibly ahead. Doji's typically need confirmation from the move the next session, but when combined with resistance or support levels, they are very good indicators of continued moves within a trend. The doji on the Nasdaq on Tuesday at the 18 day MVA during a continuing downtrend was a good indication that the downtrend would resume as it did on Wednesday. Again, doji's are great momentum indicators, particularly when coupled with support and resistance and volume.
THE PLAYS
Good movers: JBHT took off today.
NEW PLAYS
Downside
AXP (American Express--$37.98; -0.72; optionable): Credit services
Play Date: 06/19/2002
http://biz/yahoo.com/p/a/axp.html
STATUS: Put. AXP has made us money before in this downturn, and after bouncing up from the last selling binge it has moved up to the 18 day MVA (39.32) on the high the past two sessions and rolling over today to close near the 10 day MVA and near the session low. Volume did not ramp up on the reversal which would have been the best action, but we anticipate it to start to rise again on further selling. We are looking to take advantage of the next drop down from the 18 day MVA.
Volume: 4.09M Avg Volume: 4.678M
BUY POINT: $37.75 Volume=500K Target=$34.05 Stop=$41
POSITION: AXP SI - July $45 put (-91 delta) or AXP VH - Oct. $40 put (-51 delta; light but more time)
http://www.investmenthouse.com/ct/axp.html
Upside
REY (Reynolds & Reynolds--$30.27; -0.21; optionable): Business software
Play Date: 06/19/2002
http://biz/yahoo.com/p/r/rey.html
STATUS: Cup and forming a handle. We have been looking at REY for over a week, loving the accumulation ongoing in the base, but holding off until it looked ready. Well we could not hold off anymore as it tried a move up on Tuesday and then showed a hammer doji above the 10 day MVA (30.11) Tuesday on low volume. It looks as if it is now forming the handle, and it may have a few sessions more of this movement, particularly if the market sells back some more. Still it has held up very well in the up and down action, putting together 7 accumulation weeks to just 2 distribution weeks during the 3-month base. We will be patient and let it breakout for us.
Volume: 224.2K Avg Volume: 288.363K
BUY POINT: $31.15 Volume=430K Target=$37.38 Stop=$28.97
POSITION: REY HE - Aug. $85 call (81 delta; low OI)
http://www.investmenthouse.com/ct/rey.html
End Part 1 of 2
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