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us stock market, stock trading information
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6/24/02 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS:
Targets hit Monday: NX; ACV; ACF; NEU
Buy alerts issued: ADVP; IGT; SSNC
Trailing stops issued: CCRN
Stop alerts issued: ITN; HNT; PRU
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 bounce from near September lows. Some herald a double bottom. They would be wrong.
- Short covering near September lows sends the indexes higher.
- Subscriber questions
Double bottom? We know double bottoms. This was not a double bottom.
The Nasdaq and the S&P 500, not the Dow, approached their September 2001 lows today. They approached them. After another ugly round of selling last week marking a 5-week uninterrupted plunge, the test near the September lows was enough to spark some short covering. The large cap indexes reversed and rallied positive. They closed well off of their highs on the session, but they were able to hang onto some gains by the close.
The move off of the early lows prompted some calls of a double bottom. That helped fuel some upside recovery as well. It was all over the airwaves: a test of the September 2001 lows and it held. Is this it? Is it the recovery? Give me a break.
Yes volume was up from Friday's already high volume. A lot of that, however, came in the last half hour as the indexes pulled back off of the session highs. The NYSE was cruising to a lower volume close when volume spiked up the last hour. Down volume still outpaced up volume on the NYSE, the measure of volume for the Dow and the S&P 500.
The A/D line was negative on both the NYSE and the Dow after such a supposedly stellar move. While the reversal day itself is nothing definitive in most cases, you do look for some quality moves. The poor A/D line showed it was a narrow gain led by large caps stocks. Not much of a broad recovery there on this double bottom reversal.
Volatility, i.e., the sentiment indicators, simply did not get there. The VIX and VXN were nowhere near levels typically needed to set the bottom. That has been a constant shortcoming of this selling as far as reversal potential is concerned. Holders of stocks were not scared by what is going on; no volatility was being priced into options. No one wants to buy stocks that sport an average 40 P/E on the S&P 500 and an average 50 P/E on the Nasdaq 100.
As for the pattern, it did not undercut the September lows. That is really the hallmark of a double bottom: it is a pattern that finally scares out the remaining holdouts. The undercut on massive selling makes those last sellers think it is going to freefall. They bail out and you get a reversal. Even if it was a better looking pattern, you have the other shortcomings noted above, and you also have to see the follow through and breakout of the pattern. Not to mention you have to have good stocks to lead the move higher. It was a large cap rally, i.e., a rally of some oversold stocks in very poor patterns.
Short covering rally once again.
This was some really familiar action: after a serious round of selling for a week, the indexes tapped close to the near term support and staged a reversal off of those levels. Volume surged on the session as the shorts moved in to cover positions after some nasty downside action. It was bad enough to kill off the other rally attempt as all major indexes undercut the recent lows they bounced up from last week.
It was a logical place to cover. After that downside action for a week, the indexes have been following to the downside early and then reversing intraday to rally higher once near term support is tested. The next near term support just happened to be right above the September 2001 lows. We are not attaching anything magical to this move based on where it occurred. As noted above, there were not the needed attributes to signal a bottom had been set. Again, it was the next level of support and a point where a lot of shorts had already determined they would cover as they expected a bounce. That is precisely what we expected as well in the weekend report: some short covering after a test lower to the next support.
Note that the S&P 600, S&P 400, and Russell 2000 were all down. It was a large cap move higher. The most oversold stocks, the stocks that have been shorted time and again, were the ones to rally. They touched near a support level that was expected to produce a bounce, and then the heavily shorted stocks rallied on stronger volume. This is a broken record. It was short covering. Double bottom? Enjoy it while it lasts.
THE MARKET
The proximity of the lows to the September bottom lows gave rise to the 'double bottom' buzz today. Upon closer examination, however, the double bottom looks a lot like the failed reversal attempts we have seen again and again.
Sentiment Indicators
Right now you are hearing a lot about sentiment indicators, particularly volatility. After lying dormant for months and months it has been climbing. That has brought it to the headlines for those hungry for some sign of a turn. Unfortunately, they are reading the indicator incorrectly, or at least jumping the gun. It has not hit the levels that historically mark significant bottoms in the market.
They do not have to accompany a wild, cathartic cleansing. They can build over weeks to high levels while the market just works lower or goes nowhere. This grind increases the sentiment levels and leads to a bottom. Not a violent sell-off, but a process that drives sentiment very negative.
As for reading them correctly, over the weekend we said that if the sentiment indicators did not hit extremes on more selling, any bounce would not be a bottom. Today they did not make the moves needed. They did not all line up together yet, and in this bear market a smattering of signals here and there has not been sufficient. Today's 'double bottom' did not see the necessary levels.
VIX: 29.87; -1.41. Hit 32.88 on the high, hardly a point of reversal and well below the 36 intraday reading shown two Fridays back. Not there.
VXN: 58.65; -0.65. 60.32 on the high before it too rolled back. This is getting closer, but still lacks a full 10 points from getting into the range of reversal levels.
Put/Call Ratio (CBOE): 0.79; -0.48. The reversal sent it lower. It has hit levels of reversal, but the other indicators have not done so.
Nasdaq
The Nasdaq 100 and the SOX led the charge higher. It was a large cap tech recovery on the Nasdaq as the big sub-indexes rose while the A/D line on the index was negative. Again, this is the calling card of a short covering rally as opposed to a valid double bottom. In any event, until there is follow through it does not mean much. With very bad large cap tech patterns, even follow through provides very little upside potential.
Stats: +19.38 points (+1.34%) to close at 1460.34
Volume: 2.044B (+4.15%). Even stronger volume than on expiration Friday. Technically it was an accumulation day. After the undercut of the recent low after the last rally attempt you have to start the clock again and see if there will be a follow through session Thursday through Tuesday.
Up Volume: 1.163B (+798M)
Down Volume: 855M (-708M). A narrow win for up volume after a big reversal off of early selling. Not great, not bad given the reversal.
A/D and Hi/Lo: Decliners led 1.2 to 1. Decliners actually advanced on an up session versus a down session Friday. The A/D line improved in the last half hour from 1.50 to 1 to the downside.
Previous Session: Decliners led 1.05 to 1
New Highs: 70 (+9)
New Lows: 223 (+24). New lows rising on an up session. Still not at the 400+ level you would like to see during a bottoming event.
The Chart: http://www.investmenthouse.com/cd/$compq.html
1414.69 on the low. That undercuts the September 2001 closing low (1423.19) but not the intraday low (1387.06). It was also close to the long term up trendline from the early 1990's that is roughly at 1405. To some that was a double bottom and it may have been. In 1998 it was a serious undercut of the prior low and a spike of sentiment indicators that formed the bottom with the massive reversal.
Given the reversal, what are the obstacles? That would take too long to write. What are the near term obstacles is a question we can tackle. The 10 day MVA (1498.41) combines with price resistance at 1500. Then the 18 day MVA (1531.09) and the May low (1560.29), followed by the second March down trendline at roughly 1580. We always have to see how potential reversals pan out, but this one id not give any special signals from any other reversal attempt in the bear market. We look for it to stall at the near term resistance levels cited above.
Dow/NYSE
Tested near support on the low and then put together a reversal. After all the prior selling, it was pretty much forgone it would bounce near 9000 to 9100. As with the Nasdaq, not a whole lot of faith in the upside given the lack of sentiment indicator backup.
Stats: +28.03 points (+0.3%) to close at 9281.82
Volume: 1.569B (-13.12%). Lower volume on the gain, technically a negative signal, though it did follow some massive volume on option expiration Friday.
Up Volume: 711M (+232M). Not a banner day even on a positive close.
Down Volume: 841M (-469M)
A/D and Hi/Lo: Decliners led 1.41 to 1. A worse day on the A/D line even with the gain. Again, this shows a rally in the large cap stocks that had been really roughed up over the past week of selling. It is a continuing pattern: selling hard for a week and then a rally/short covering drive that moves up to next resistance.
Previous Session: Decliners led 1.31 to 1
New Highs: 97 (+6)
New Lows: 201 (+56)
The Chart: http://www.investmenthouse.com/cd/$indu.html
The Dow bounced almost exactly where expected, hitting 9083.56 on the intraday low, just under first support at 9100 and above second support at 9000. This is the short run bounce discussed this weekend. Resistance is found at the March down trendline at 9420, the 10 day MVA (9491.23), and price resistance at 9500. The 18 day MVA is at 9605.51. These are the near term resistance levels to look for resistance to this short covering move.
S&P 500:
Very similar action: the S&P tapped 970.85 on the intraday low, still above the September closing low (965.80) and intraday low (944.75). From that low it reversed and rallied to close positive for the session on above average but overall lower NYSE volume. Somewhat of a test of the prior bottom, but it was not an undercut and it did not spike fear levels very high. What it did show was very similar action to prior short covering reversals: a new intraday low followed by a reversal on strong volume. No spike in sentiment indicators and no great pattern breakouts from the large caps. Right now you have to look at it as a reflex bounce/short covering move after testing support following another round of strong selling. Resistance at the September 2000/May 2001 down trendline (1001), the March down trendline and 10 day MVA at 1013.58, and the 18 day MVA (1026.51) are the near term resistance points.
Stats: +3.43 points (+0.35%) to close at 992.57
NYSE Volume: 1.569B (-13.12%)
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Today saw the bounce up off a semi-test of the September 2001 lows that we anticipated. Now we look for the indexes to run into trouble at the nearer term resistance levels given the same action we have seen before and the failure of sentiment indicators to lend any credence to a double bottom argument. Then comes the real test of the September lows, one we don't think will be successful. Again, the Dow has a lot more selling to accomplish before it is at a point where its stocks could be considered a value. Remember, it has IBM, INTC, MSFT and HPQ to deal with.
Consumer confidence and existing home sales are out a half hour into the action tomorrow. Some argue that the economic data have little impact on the market. We have noted the disconnect between the economy and the market in our reports. Still, there are reports that move the market. Sentiment is one because there is the perception that sentiment guides future buying habits. That has been shown to be historically inaccurate as far as a leading indicator, but the market perceives it this way. It can cause the market to weaken if it is significantly lower than expected. If it is stronger it may help fuel some further upside action on toward the near term resistance that will most likely stall this move.
Tomorrow we look for a further move higher early. As we feel this move will have less strength than the prior test up to the 18 day MVA, we will also be looking for that intraday reversal that we have often seen during the steeper downtrends: a reversal day, another move up the next session, then a close well off of the intraday high. That may set up some more downside action on those large caps that bounced higher on the short covering.
Support and Resistance
Nasdaq: Closed at 1460.34
Resistance: The 10 day MVA (1498.41) combines with price resistance at 1500. Then the 18 day MVA (1531.09) and the May low (1560.29), followed by the second March down trendline at roughly 1580.
Support: 1420 is where the Nasdaq tapped intraday four sessions after reversing off of the September 2001 low. After that is the September low at 1387.06. 1357.09 is the October 1998 bear market low.
S&P 500: Closed at 992.72
Resistance: The September 2000/May 2001 down trendline (1001), the March down trendline and 10 day MVA at 1013.58, and the 18 day MVA (1026.51). The second March down trendline at 1045. The May low at 1048.96. 1060 offers minor resistance from previous prices. Then the February lows at 1074.
Support: The bottom channel of the March down trendline at 982. The September low is 944.75. 923.32 is the October 1998 bear market low.
Dow: Closed at 9281.82
Resistance: March down trendline at 9420, the 10 day MVA (9491.23), and price resistance at 9500. The 18 day MVA is at 9605.51. Then 9750 and the April and May lows at 9800 to 9811. The 200 day MVA (9831.32). The September 2000/February 2001 down trendline is at roughly 9910 and the 50 day MVA at 9848.28. Then 10,100, followed by 10,250 to 10,300.
Support: 9100 from the October 2001 consolidation after the move off of the September low. 9000 is the November low off of the first rally from the September low. There is a rest stop at 8500. The September low is 8062.
Economic Calendar
6-25-02
Consumer confidence, June (10:00): 109.6 expected versus 109.8 prior.
Existing home sales, May (10:00): 5.63M expected versus 5.79 prior.
FOMC meeting day 1
6-26-02
Durable goods orders, May (8:30): +0.5% expected versus +0.8% prior.
New home sales, May (10:00): 915K expected versus 915K prior.
FOMC announcement (2:15): Expect no change in rates or bias.
6-27-02
Initial jobless claims (8:30): 385K expected versus 393K prior.
GDP (final), Q1 (8:30): 5.6% expected versus 5.6% prior.
Chain deflator (8:30): 1.0% expected versus 1.0% prior.
Help wanted index, May (10:00): 47 expected versus 47 prior.
6-28-02
Personal Income, May (8:30): 0.3% expected versus 0.3% prior.
Persona spending, May (8:30): 0.0% expected versus 0.5% prior.
Michigan sentiment, revised , June (8:45): 90.8 expected versus 90.8 prior.
Chicago PMI, June (10:00): 58.5 expected verus 60.8 prior.
SUBSCRIBER QUESTIONS
Q: Love your table, but I cannot tell whether the plays are puts or calls in the cases of "Test BO", "cup hdl", "Test 18 or 50", etc. Could you explain these further?
A: Puts are under specific headings, usually just 'put.' We do have other put designations that we use at times. These are 'D Wedge' for descending wedge; 'Dbl Top' for a double top; and 'H&S' for head and shoulders. Each of these are bearish patterns representing downside opportunities. We usually designate them as 'put' in the table for simplicity sake.
THE PLAYS
Best plays, Part 1:
1) XL: Ready to test and roll back over.
2) GISX: Great accumulation.
NEW PLAYS
Downside
XL (XL Capital--$88.01; -0.34; optionable): Property & casualty insurance
http://biz.yahoo.com/p/x/xl.html
STATUS: Put. Bouncing up and down below the 200 day MVA (89.83) and the 50 day MVA (89.25), today tapping up to 89.01 on the high. It is the second straight day it tried that level, and sold back showing a doji on the close after a rise up from 83 the past two weeks. Volume fell to below average levels, and it looks as if it is running out of gas on this move. It has made two moves down to the 83 level in the last month, so we are looking for another one here. May get another test of the 50 day MVA first.
Volume: 760.6K Avg Volume: 870.318K
BUY POINT: $87.38 Volume=800K Target=$82.65 Stop=$90.50
POSITION: XL VS - Oct. $95 put (-60 delta)
http://www.investmenthouse.com/ct/xl.html
NCR (NCR Corp.--$35.36; +1.15; optionable): Software; information technology
http://biz.yahoo.com/p/n/ncr.html
STATUS: Put. NCR is trending down since the market topped in March. After selling down to 34, NCR rebounded up to test the 50 day MVA early last week. It has sold off on some very strong volume. Monday it bounced higher on lower volume, testing the 10 day MVA on the high (36). We are looking for another move higher to test the 18 day MVA (36.33) before it rolls over on this next round of selling. We will look at taking positions after a failed test of the 18 day.
Volume: 600.2K Avg Volume: 480.272K
BUY POINT: Aggressive: $35.75. Next: $35.25 Volume=625K Target=$31.15 Stop=$38
POSITION: NCR VH - Oct. $40 put (-63 delta) or NCR VI - Oct. $45 put (-80 delta)
http://www.investmenthouse.com/ct/ncr.html
Upside:
GISX (Global Imaging Systems--$20.09; +1.04; optionable): Retail: GPS systems
http://biz.yahoo.com/p/g/gisx.html
STATUS: Ascending wedge. After breaking out of a cup with handle in January, GISX is now in a 6-month ascending wedge. This is a combination pattern that we like, and GISX, though not at a new high, is not far from one (26.25). Monday say the stock on a solid move on stronger, above average volume. A solid performer in this market, and we are looking for a strong breakout. Accumulation weeks lead distribution weeks 7 to 3 in the base. Relative strength is already breaking out on this move, a bullish sign.
Volume: 172.8K Avg Volume: 160.909K
BUY POINT: $20.85 Volume=185K Target=$25.48 Stop=$18.25
POSITION: Stock and/or GHQ KW - Nov. $17.50 call (72 delta)
http://www.investmenthouse.com/ct/gisx.html
OVTI (Omnivision Technologies--$14.26; +1.02; optionable): Integrated circuits
http://biz.yahoo.com/p/o/ovti.html
STATUS: Ascending wedge. Yes it is in semiconductors but it has been performing very well. Accumulation in the 6-month pattern is 9 weeks to 2 distribution weeks. Accumulatoin has been outstanding and relative strength is already breaking out. We are looking at this one as a trading play, though we would let it run for us if it will.
Volume: 591.7K Avg Volume: 326.045K
BUY POINT: $14.55 Volume=500K Target=$19.48 Stop=$12.85
POSITION: UCM IB - Sept. $10 call (93 delta)
http://www.investmenthouse.com/ct/ovti.html
End Part 1 of 2
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