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us stock market, trend trading stock
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8/12/02 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS:
Targets hit alerts issued Monday: None issued.
Buy alerts issued: VFC; OSTE
Trailing stops issued: None issued
Stop alerts issued: None issued
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:
- Honey, that is low volume.
- About as good a consolidation session as you could ask for.
- FOMC meeting sets the tone for the Tuesday action, sort of.
- Team Trades
And you thought Friday's volume was low.
Traders were calling the action horrid, a sleeper, etc., but from our perspective the session was excellent. Volume was nowhere to be found except, that is, in certain stocks that we were looking at that made solid volume moves from good patterns. In this market that is trying to transition from out and out selling and the fast downside profits that action brought to a longer term upside move, those are the kind of stocks that you have to put the most faith in. True some stocks will move up on lower and lower volume, but our experience with abrupt reversals from those stocks usually keeps us out of them. In any event, we found some nice volume moves even in overall low volume. That is a clear sign of strength in these issues.
As for the actual volume, Nasdaq volume was easily the lowest since half day sessions following Thanksgiving and Christmas in 2001. NYSE volume was no great shakes; you have to go back to the July 4 holiday or Memorial Day to get lower. It was slow and boring, but in a consolidation of a prior rally, slow and boring is what you want.
Very nice consolidation.
Consolidating gains, digesting gains, back and filling; whatever you want to call it, the Monday action was about as good as it gets for a rest after a nice leg higher. What makes it even better is that it came off of a Friday that was a very respectable consolidation session itself.
There are a few key attributes you look for in a lull after the market or a stock rallies. First you want the low volume. Second you want stocks holding onto most of their gains in the prior rally. We like to call this being stingy with gains, but you can call it anything you want. The key is that stocks hold most of their gains and do not renew the bear market habit of selling on big chunks or real estate on low or high volume. As written last week, we anticipated this move would hold onto more of the gains than the first consolidation effort in early August. For now that is what it has been doing. Third, you want the indexes to more or less continue the bullish pattern of rallying back after early losses, the reverse of the bear market pattern of starting the session higher on hopes and ending lower in anguish. On top of that, and this goes for any recovery, you want to see sold stocks in good patterns holding onto those patterns or putting the finishing touches on them as the market moves a bit lower. You can even see them breaking out as we have seen the past two sessions as the money that is out there chases those stocks that are in demand.
Monday met these criteria. Volume was lower as discussed. Stocks did not give back much of last week's gains on the selling. That makes it more of that weeding out process where some short term profits are taken and some get out 'even' seeing that the market is not rising steadily and fear a reversal. That shakes out those uncommitted sellers and allows demand to start outpacing supply, a necessary element in getting a strong breakout move. Further, after starting the session lower all indexes staged nice recoveries to close just off the session highs. The market fought off the attempts to sell it. Finally, there were stocks in solid patterns that made breakout moves or continued strong moves. It was a very constructive session.
THE MARKET
No news, no excitement, no problem. That is what we wanted and the market delivered. A downgrade of Intel by Jonathon Joseph at SSB, Wal-Mart's confession that sales are not that great, and a lower dollar supposedly based on a diminishing chance of a Fed rate cut did not bring ruin upon the market. Things looked pretty grim in pre-market action with the futures sliding lower, but that was washed out of the market with the indexes hitting their session lows in the first half hour. It was the second straight session of low volume selling. Some called it dreadful action but others hit the nail on the head: this is perfect for a continued rally.
Sentiment Indicators
VIX: 40.46; +1.10. Rose on some very mild selling.
VXN: 56.29; -2.41.
Put/Call Ratio (CBOE): 0.74; +0.05. Staying at the higher end of the range even on mild sessions, indicating continued anxiety and pessimism in the market.
Nasdaq
Friday it struggled a bit, but Monday the Nasdaq settled into a steady consolidation, rallying from its lows and closing just over the 18 day MVA once again. Nice lateral action on low volume.
Stats: +0.72 points (+0.06%) to close at 1306.84
Volume: 1.059B (-20.37%). Extremely low volume, the lowest since December at Christmas. No real selling, no real buying.
Up Volume: 494M (+97M)
Down Volume: 534M (-379M). Very even action.
A/D and Hi/Lo: Decliners led 1.1 to 1
Previous Session: Decliners led 1.33 to 1
New Highs: 20 (-3)
New Lows: 134 (+18)
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq worked laterally, testing the 10 day MVA on the low (1292.32) and moving higher to again close just above the 18 day MVA (1304.95). This is very solid action as the Nasdaq gave up 10 points Friday on low volume and then was basically flat Monday on even lower volume. The action shows no real sellers yet attempting to push the index lower. Indeed, we feel that the shorts are not interested in selling this market right now because it is showing signals that it is attempting a further rally. What the shorts are going to wait for is a further move higher up toward the 50 day MVA (1398.83) or beyond before they really jump back into the fray and get serious about trying to sell the market. After big downside gains there is no reason for shorts to get in a hurry; better to let some complacency creep back in the market before sticking the neck out.
As for upside, the Nasdaq needs another day or two of this lateral action and then it will be ready to attempt a move higher. If you want to pin a label on it, the current action looks like a handle forming to the short double bottom (much truer a double bottom than the Dow or S&P 500) from late July to early August.
Dow/NYSE
Another test of the 18 day MVA on the low and a recovery to close near the session highs as volume dropped off the table. Another good day of rest.
Stats: -56.56 points (-0.65%) to close at 8688.89
Volume: 1.04B (-16.72%). Very low, very below average volume.
Up Volume: 356M (-416M)
Down Volume: 664M (+180M)
A/D and Hi/Lo: Decliners led 1.15 to 1. Very moderate internals.
Previous Session: Advancers led 1.24 to 1
New Highs: 38 (-4)
New Lows: 72 (+9). New lows fell on a down session. Positive action.
The Chart: http://www.investmenthouse.com/cd/$indu.html
A loose doji on the candlestick chart that tested the 10 and 18 day MVA on the session low (8582.01) and rallied back to close not far off the session high (8742.06). The action continues the good price/volume action seen of late, and it continues the building of a better base off of the July low. Indeed, the pattern more resembles and ascending wedge or triangle at this point where a series of higher lows build below a constant top (at 8750). As we say in the seminars, it is like squeezing a watermelon seed between your fingers; the pressure builds and it shoots up with a strong burst. It could still test lower in the pattern or in this consolidation, back down to the 18 day MVA (8529.50) and still be well within a normal consolidation. Again, this time around we don't think the consolidation selling will be as steep as it was in early August.
S&P 500:
The large cap index is forming an ascending wedge of its own with its top right at the July high (911.64). It too tested the 10 and 18 day MVA on the low (892.38) and then rallied higher to close just shy of its session highs. Good bullish action, and the lower close is not a problem as NYSE volume trailed way off, coming in well below average. There are not many sellers out there, and while buyers have not been just blowing the market away, for now they are in greater quantity than sellers. That indicates that the market is setting up for another leg higher once this consolidation runs its course in a day or two. The easy run is up to the 50 day MVA (937.30) where the March down trendline is, but we will just have to see how strong the upside action is before we can really put a target on the move.
Stats: -4.84 points (-0.53%) to close at 903.8
NYSE Volume: 1.04B (-16.72%)
The Chart: http://www.investmenthouse.com/cd/$spx.html
TUESDAY
Will they or won't they? Only Greenspan (or his hairdresser) knows. Reality was setting in more Monday as to the likelihood or a rate cut at 2:15 p.m. Tuesday. The odds-makers (the Fed Funds Futures contract) are against it, but there is a compelling long-shot argument that the Fed should not wait to use its weapons while there is still time. Call it taking out insurance or whatever you want, but it is a compelling argument, particularly when juxtaposed against what happened in Japan. The Fed study of the Japan meltdown concluded that the Japanese central bank and government did too little too late to head off Japan's economic problems. If there is a doubt about the U.S. situation after a big bubble in the market has burst (pumped up by the Fed, no less), it is best to err on the side of stimulus. The stakes are too high to try and slice things too fine, to try to be a 'maestro.' Just make damn sure the economy does not slide further. And while you are at it, throw in some words about the need for final demand to pick up and how some more fiscal stimulus would go hand in hand with the rate cut to get the job done.
Okay, back to earth and reality. Most likely no rate cut, but will that be a bad thing for the market? Doubt it. Basically there is uncertainty as to what the Fed thinks and will do. Tuesday it could be win-win: if there is a cut the Fed is going to be careful to say it is taking out insurance: things are good, but why risk it. If there is no cut the Fed can say that they are carefully monitoring the situation as they did when they gave 11 prior rate cuts, but the economy does not warrant any rate cut at this time. Kind of a vote of confidence and many will take that as a positive.
We don't think the shorts will try and sell on the news, cut or not. The shorts see the recent action that is attempting to form a bottom. We all feasted on the downside action when the trend was flat out down. Now there are classic signals a better bottom is trying to establish, and the sellers are willing to let the market rise up to the 50 day MVA or the bottom of the 1998 bear market before trying to run it down again; they need some room to put on the shorts, and right now things are a bit tight to the downside with the higher low being recently made. That is how this market has been able to rise on volume that has been less than spectacular on this rally; there are more buyers than sellers, but relative volume is well off the pace set in the first two months of summer.
The certainty of the Fed action will allow the market to make more of a move. We don't anticipate much more action ahead of the meeting, but the market tends to rise up to the actual announcement. Thus in the hour or so before the announcement we may see a market move. After the announcement, particularly if it is a no change statement, we anticipate some selling as the knee-jerk reaction. The session may finish down after that, but we are anticipating another attempt to resume the rally after the Fed announcement or on Wednesday. So basically we wait to see what the Fed does. When it makes its move and we see the indexes move higher we want to take some positions on the indexes, particularly the Dow and S&P in their ascending wedges. At the same time we look for the good stocks with good accumulation to make their moves and pick them off when they do as we have done the past few weeks.
Support and Resistance
Nasdaq: Closed at 1306.84
Resistance: The hump in the double bottom pattern at 1354.48 followed by 1357.09, the October 1998 bear market low. Then 1418, the interim test after the September low. The 50 day MVA (1398.33) and the second March down trendline at 1412. That is followed by 1500.
Support: The 18 day MVA (1304.95) and price resistance at 1300, though the index is right at that level. The 10 day (1292.32) is possible but also close. The March down trendline (1225). Price support from 1190 to 1200 (the July low is 1192.42). The bottom of the March downtrend channel (1165).
S&P 500: Closed at 903.80
Resistance: The predominant bottom channel line from the March downtrend at 903 is still not totally cleared. The top of the wedge that has formed at 911.64. The 50 day MVA (937.39). The March down trendline at 940.
Support: The 18 day MVA (888.59). The 10 day MVA (886.34). The lowest channel line in the March downtrend channel (870). 850 to 855 has recently held (the October 1997 and Q2 1998 lows). 830, the recent August low is possible, but 800 is more likely. Then the July low at 775.68. 750 to 760 with an intraday touch to 730.
Dow: Closed at 8688.89
Resistance: The late July high that is the top of the ascending wedge at 8762.14. The March down trendline at 8890. Then the 50 day MVA (8892.72). After that price resistance at 9250 and then 9500.
Support: The 18 day MVA (8529.50). The 10 day MVA (8527.66). The lowest bottom channel line of the March downtrend at 8480. The September closing low at 8235.81 more or less held last Wednesday. 8062, the September 2001 intraday low, has tried to hold on a couple of recent occasions as well. Then the July low (7532.66). The October 1998 lows are at 7400 and 7467. After that is 7000, some 1997 lows and highs.
Economic Calendar
8-13-02
Retail Sales, July (8:30): 1.2% expected, 1.1% prior.
Ex-autos: 0.3% expected, 0.4% prior.
FOMC results (2:15)
8-14-02
Business inventories, June (8:30): 0.2% expected, 0.2% prior.
8-15-02
Initial claims (8:30): 370K expected, 376K prior.
Industrial production, July (9:15): 0.2% expected, 0.8% prior.
Capacity utilization, July (9:15): 76.2% expected, 76.1% prior.
Philly Fed, August (12:00): 8.5 expected, 6.6 prior.
FOMC minutes, June (2:00)
8-16-02
CPI, July (8:30): 0.2% expected, 0.1% prior.
Core CPI: 0.2% expected, 0.1% prior.
Housing starts, July (8:30): 1.670M exected, 1.672M prior.
Building permits, July (8:30): 1.680M expected, 1.700M prior.
Michigan sentiment, Aug. preliminary (9:45): 89.0 expected, 88.1 prior.
SEMINARS NOW ON CD!!
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TEAM TRADES
CHTT: Another sector performing well and in a good accumulative pattern over the past two months. Friday it showed a doji on rising volume in its handle, a 'get ready' signal. We got ready and just in time as the stock made a strong move Monday on some impressive volume. This was one we did not have to think about a lot either. When it hit the buy point on the move up over the handle high (the resistance it needed to clear), volume was already running out ahead of average on well on target. It was a matter of getting the order in and getting the buy point. The spread was 35.27 by 35.50. As we finalized the order it was moving higher, so we modified the order to get the limit order even with the ask. As it turned out the ask was a penny or two lower when the order went in and surprisingly we did not get shafted on the trade, i.e., the market maker did not run it up to the limit price, hit us, and then run it back down. On a stock with a 100K average trading volume more or less, to get that treatment is rare. The stock continued to move, and was up another dollar at the close. A good start as the stock moves up ahead of the rest of the market, something we are seeing in many of the stocks with solid patterns.
End Part 1 of 2
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