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us stock market, trade stock
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8/15/02 Technical Traders Report Update
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Technical Traders Report Subscribers:
MARKET ALERTS:
Targets hit alerts issued Thursday: Thought about JCOM, but with the huge volume and solid move we let it ride.
Buy alerts issued: EXPE; FSH; HGSI; CSTR
Trailing stops issued: None issued
Stop alerts issued: MTB; SBC
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:
- Tough session comes out on top after economic numbers try to tank it.
- Economic news modest and ignored until Philly Fed bombs. As always there is more to it than the reported numbers.
- The test of the move is the 50 day MVA.
Indexes post gain, but it was not easy.
After the big surge Wednesday the indexes were up and running again Thursday, testing lower first, then making a solid run. The Dow and S&P slammed into the 50 day MVA, staggered, and made another run at it. Just when they were trying the 50 day MVA a second time the Philly Fed released its fairly pathetic August report and the impact was immediate and opposite. That failed double shot at the 50 day MVA set up an intraday top and the markets did what they usually do in such a situation: they fell. Just an hour later the Nasdaq hit a session low and the Dow and S&P came close to one. Looking grim.
It was do or die time, and once again the indexes managed to stage an afternoon rally. After the rally back up started, Maria Bartaromo, in her usual eloquence, noted that the market had 'made a 360' and was heading back up. Whatever. Buyers came in and bought. That move actually stalled and dropped precipitously. Once more buyers had to come back in and rescue the market, and for the third time in the session they did just that. No new session highs were hit, and after the three earlier failures to take out the 50 day MVA we noted in an alert we were not expecting it to. Still they managed to regain many of the points that were lost in the earlier selling.
It was a hard fought session that managed to fight positive more than once. Volume was still below average but solid. In the end the indexes closed higher but right under what is appearing to be fairly stout resistance, the 50 day MVA on the Dow and S&P 500, and the late July high for the Nasdaq.
THE ECONOMY
Jobless claims and industrial production palatable, Philly Fed upsets market.
Jobless claims rise modestly to 388K.
Headlined as a 6K rise, it was really a 12K rise as the previous week number was revised up to 382K from 376K. Thus once again the numbers are within the margin of error. About all you can take from this number is (once again) jobless claims are bottoming.
The 4-week average rose to 381,750 from 380,500 (revised up from the prior report). Still well below 400,000 that is considered recession-like. Continuing claims, those claims held over for 4 weeks, were up for the second straight week. After showing some topping action in June, the job market appears to have softened a bit as more unemployed remain unemployed, unable to find work.
Industrial production rises; capacity flat.
Production from U.S. plants rose 0.2% in July, the seventh straight month of gains. It was better than the 0.0% reading expected and down from the 0.7% gain in June, a month that was predicted to be stronger than July, a typically slow month for retail, manufacturing, you name it. Durable goods led the way with a 0.5% gain. Non-durables were down 0.5%. Kind of a dead heat, but autos were the main reason for the gain.
Philly Fed tanks to -3.1 in August from 6.6.
Expectations were for a 7.8 reading, topping the July 6.6 reading. This report was in contrast to the national picture painted by the Industrial Production numbers released earlier in the session. New orders were negative as were shipments, both falling from strong positives in July. The employment index was already negative and it went further in the red, falling from -6.8 to -13.4. It should be noted that the Philly number did not include the automobile data the Industrial Production report did, and that skewed the numbers south. Still, it was not a good month.
What do Thursday's numbers mean?
Jobless claims and production indicate the economy did not do much, but for a month when most thought the economy tanked, the July numbers were not bad. The Philly Fed was a reading for August; is it a sign of that double dip to come? No. Again, the number did not include autos, something that made July a stronger month as non-durables slacked their pace in favor of autos and 0% financing. Consumers are not really slowing buying, they just shifted focus as we said a month ago. With jobless claims holding steady and the ECRI still pointing to no double dip, it is very doubtful consumers will stop doing what they always do: consume. Also, much of the blame for lower numbers was the fall in the stock market. Since then the market has bottomed and rallied well, the S&P 500 up 17%. If it was the market then, the market should be helping now. The numbers again point out the danger of driving using the rearview mirror.
THE MARKET
A hard fought session where the Dow and S&P 500 banged against the 50 day MVA twice and lost steam. There were simply not enough buyers to push the indexes past that key level after the strong surge posted Wednesday. Still, the indexes found some strength late once again and rallied to recapture most of the earlier gains. That continues the more bullish action that has characterized the market the past couple of weeks.
Nasdaq volume moved again higher on the somewhat tepid gain while NYSE volume edged slightly lower. The large caps led the big three, but mid-caps were as strong as the large caps. Dell hit its numbers and was up on revenues, but it was again efficiency and taking market share. We always said that Dell would win a price/efficiency war, but winning a war in that industry right now does not guaranty riches. In any event, this type of result seems to help the market short term as seen with Cisco and others. As for retail, KSS again proved there was reason for other discounters to fear as it knocked the cover off the ball, growing earnings 43% and beating the street by 2 cents. Consumer slowing? Hardly.
The key is whether the earnings and momentum can take out the 50 day MVA. Thursday was such a struggle after tapping at those levels with the market churning back and forth, it is going to take something additional to push them through on this rally.
Sentiment Indicators
Bulls versus bears: Since mid-July the bullish and bearish advisors have been dancing the tango, and they have been holding each other close. After bears once again overtook bulls last week for the third week out of four, bears edged above bulls this week. Bulls rated 38.5% while bears slipped to 37.4% as the move off the bottom turned more advisors upside. It is still very close. Moreover, the study does not really report short term bulls versus long term bulls, short term bears versus long term bears, etc. We are short term bullish, note quite so short term bearish, and long term bullish (gee, unless the U.S. goes under, long term bullish usually works in the broadest sense). Anyway, the point is, the bulls and bears are still fighting it out, and bears have surpassed bulls 3 of the last 5 weeks, just missing out this past week. That continues to be upside positive for the market.
VIX: 36.36; -3.44. About what you would expect on a strong move up.
VXN: 53.28; -4.40
Put/Call Ratio (CBOE): 0.82; +0.11. Put action was up on a strong up session. Put buyers heading the wrong way as a group as usual.
Nasdaq
Managed a high for the session on once again rising volume. Technically an accumulation session, but it was very choppy trading, unable to add much on to the opening price. It still has room to move higher, but the other two big indexes will have to break resistance first.
Stats: +10.71 points (+0.8%) to close at 1345.01
Volume: 1.751B (+7.68%). Volume again up on the session, technically an accumulation session but still below average.
Up Volume: 1.016B (-362M)
Down Volume: 602M (+380M). Up volume maintained its lead but it was eroded on the back and forth action. As evident, it was not a powerful upside session.
A/D and Hi/Lo: Advancers led 1.07 to 1. Edged out a gain but it took the last rally to do it.
Previous Session: Advancers led 2.02 to 1
New Highs: 40 (+6)
New Lows: 116 (-50)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Gapped higher as we thought it might and then came right back down as we thought. It was unable to take out the late July intraday high (1354.48) even on the session high (1350.92), churning up and down below that level. If it clears this level it has room to the 50 day MVA (1389.16). Again, it must clear this level and have some help from the Dow and S&P 500 moving through their 50 day MVA where they found resistance Thursday. The candlestick pattern was a loose 'hanging man' doji. By 'loose' we mean the open and closing price were spread a bit; that is not as clear a signal as a tight doji where the open and close are in very close proximity. It may test back to the 10 and 18 day MVA (1308.93) before it moves up through the late July high.
Dow/NYSE
A slight break over the late July high, but then ran into the 50 day MVA on the high. Could not muster enough buy side action to break through.
Stats: +74.83 points (+0.86%) to close at 8818.14
Volume: 1.513B (+0.08%). Volume discrepancies from the NYSE show a slight gain over Wednesday, but from the bigger picture volume was basically flat and still below average.
Up Volume: 1.102B (-168M). Maintained a better up to down ratio than the Nasdaq as mid-caps and large caps performed well.
Down Volume: 398M (+172M)
A/D and Hi/Lo: Advancers led 1.66 to 1
Previous Session: Advancers led 2.62 to 1
New Highs: 40 (-5)
New Lows: 57 (-68)
The Chart: http://www.investmenthouse.com/cd/$indu.html
Two strong and one half-hearted run at the 50 day MVA (8869.31) were repulsed, but the Dow came back one more time late to log a modest gain. It churned and showed equivocation at that level, one that it appeared to have enough momentum to overtake. Still, the Dow is lagging the other indexes right now with its narrow focus, and we don't really look to it to lead. That falls on the S&P 500 and then to the Nasdaq, both necessary for a further recovery. The leg started with great promise Wednesday; we would be surprised to see it stall here, but the action today was grinding.
S&P 500:
Stats: +10.63 points (+1.16%) to close at 930.25
NYSE Volume: 1.513B (+0.08%)
The large caps were again the market leaders, and Thursday they were joined by the mid-caps with their own 1.6% gain. The move was broad, just not real powerful. The Dow's action was very similar to the large caps: the S&P made 2 strong runs at the 50 day MVA (934.52), and it looked as if it was going to break the barrier until the Philly Fed report hit just as it made the second move to the 50 day. We cannot blame a report on tanking the market, but it lost momentum at that point. It was able to mount two more moves higher, the last one holding on the upswing as the session ran out of time. If the action had continued, the up and down action would most likely have continued as well. We said Wednesday that the 50 day MVA would be key, and thus far it has not totally defeated the S&P's move, but it is not going to give in easily. At this point it converges with the March downtrend line, and that makes the level even more formidable. It will take something to push it over this level to test 950 to 975, our target for the move up off of the low. It might settle back one more time to test the late July high first given the slowing momentum Thursday.
The Chart: http://www.investmenthouse.com/cd/$spx.html
FRIDAY
Options expiration as well as Michigan Sentiment again. It was the Michigan sentiment preliminary number that first started the 'bad' round of economic news of late, but we also have to remember that very survey indicated that those polled were very likely to buy cars and houses in the next six months. As the numbers have shown, consumers are in fact buying houses and cars, switching from the non-durables just as we anticipated they would now that GM and others brought back 0% financing. The market is edgy after the last report and the Philly Fed, however, so this number means something. CPI is out before the open, and it too means something though it will most likely be an afterthought given the idea that the economy is turning weaker. If prices are low that will be expected. If they are too low that further fans the fear of deflation; the CPI is a no-win number for the market tomorrow. Thus the 'feel good' number from the great north will hold the most attention.
Futures are a bit down, Dell is a bit up, and Kohl's is way up on its numbers. A soft open would not be a bad thing; we may get just what we wanted so to speak. The one thing to be mindful of here: the indexes could not break the 50 day MVA on two shots at it. Shorts view that as significant just as bulls do. A move, particularly a close, over the 50 day MVA causes more shorts to cover and more shorts to stay away, waiting for the next resistance level to act. On the other hand, another failure at the 50 day MVA encourages more shorts to come into the market and start selling below this resistance level. Thus, how the Dow and S&P 500 trade around these levels will get magnified in the direction they ultimately move.
Dell and Kohl's may help after some initial softness. KSS shows that the consumer is very much alive and Dell affirmed its Q3. What the market really needs is a stronger Michigan sentiment review. We poke fun at it for its 'preliminary' reading that is so small it is statistically flawed, but at this stage the market needs some good news on the economy. Unfortunately the headline number garners the focus but as seen last time, it did not really reflect reality in that people may have said they were less confident but they also indicated they were going to make some major purchases. They have been doing just that.
After the struggle Thursday to close higher we anticipate the market will have a struggle at the open. Odds are it will have to struggle again after the Michigan sentiment report. With options expiration thrown in the usual early intraday swings will be there as well. The key will be how the market is able to recover and how the Dow and S&P 500 challenge the 50 day MVA as the session progresses. The moves up from the July low are from 13% to 17%, short of our projected moves and rather anemic from a historical perspective. While we will let the market tell us what the score is, we still anticipate that there will be a break over the 50 day MVA on this leg. It may take another test lower first and another higher low. Many sectors that lead when the market is moving higher are performing well: retail is enjoying a great comeback, financials of all sizes are moving up sharply. Typical sectors that perform well when the economy and then the market perform well.
Support and Resistance
Nasdaq: Closed at 1345.01
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 (1389.16) and the second March down trendline at 1405. That is followed by 1500.
Support: 1315 is possible. The 18 day MVA (1308.93) and the 10 day MVA (1305.34). Some price support at 1300. The July lows at 1240 to 1230. The March down trendline (1212). Price support from 1190 to 1200 (the July intraday low is 1192.42).
S&P 500: Closed at 930.25
Resistance: The March down trendline at 933. The 50 day MVA (934.52). 965, the September 2001 closing low. 1000 is psychological resistance.
Support: The top of the wedge that has formed at 911.64. The 10 day MVA (899.01 and the 18 day MVA (895.53). The July up trendline at 878. The lowest channel line in the March downtrend channel (863). 850 to 855 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 8818.14
Resistance: The March down trendline at 8820. The 50 day MVA (8869.31). 9000 represents some price resistance. After that price resistance at 9250 and then 9500.
Support: The late July high that is the top of the ascending wedge at 8762.14. The 10 day MVA (8607.05) and the 18 day MVA (8576.05). The May down trendline (8465). The lowest bottom channel line of the March downtrend at 8457. The July uptrend line (8355). The September closing low at 8235.81. 8062, the September 2001 intraday low, has tried to hold on a couple of occasions. 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% actual, 1.2% expected, 1.1% prior.
Ex-autos: 0.2% actual, 0.3% expected, 0.4% prior.
FOMC results (2:15): Rates unchanged. Bias toward risks to the downside though the Fed says the prior cuts 'should work.' If there are risks, why doesn't the Fed go ahead and make that insurance cut?
8-14-02
Business inventories, June (8:30): 0.2% actual versus 0.2% expected, 0.2% prior.
8-15-02
Initial claims (8:30): 388K actual, 380K expected, 382K prior (revised from 376K).
Industrial production, July (9:15): 0.2% actual, 0.0% expected, 0.7% prior (revised from 0.8%).
Capacity utilization, July (9:15): 76.1% actual, 76.0% expected, 76.1% prior.
Philly Fed, August (12:00): -3.1 actual, 7.8 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.
SUBSCRIBER QUESTIONS and TEAM TRADES
Due to some flooding and severe storms in the area we were unable to prepare any questions or trades. We will resume again in the weekend report.
End Part 1 of 2
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