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world stock market, us stock market
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8/26/02 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS:
Targets hit alerts issued Monday: None issued
Buy alerts issued: None issued
Trailing stops issued: USPI
Stop alerts issued: SIE; TELK
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:
- Sell early, buy late returns.
- Home sales continue at record pace, August retail sales back off.
- Anemic summertime volume makes the session a harder read.
- Subscriber Questions
Better market character returns.
The move higher we were looking for early Friday showed up. A bit late, but somewhat of a testament to the rally that is not easily giving in. Monday also marked the return after a one-day absence of buying on pullbacks.
Futures were up but pulling back all morning, something seen last week. The market opened positive but spent the rest of the morning giving up gains and testing lower. The Dow and S&P 500 were below the 50 day MVA to start the session, and after faltering there on a weak first bounce, they tanked to test the 18 day MVA on the low. We noted in an intraday alert this was the point where any upside move would have to be made, and as soon as lunch was finished the market started the afternoon run.
The indexes stalled a bit when re-testing the 50 day MVA, broke over that level, tested it, and then held on the close. Many individual stocks mirrored this action, testing down to or below their short term support levels and then posting rebounds in the afternoon where they managed to retake support. This is one reason why stop losses have to be a bit flexible. If you are coming to a selling or pullback point in the market e.g., at resistance) but it does not look like a complete rollover (i.e., testing the support levels on low volume), you have to have a little give in stops. As we saw today, several stocks tested below support and then recovered. Thus far most stocks are not suffering distribution, and when they are not and buyers have been coming in late we usually hold off on cutting off the play until later in the session. It does not always work perfectly; you will always pull the plug on one that reverses or vice versa, but if you keep your mindset with the current trend and base your actions accordingly, you usually come out in good shape. In any event, stocks were mirroring the index action, selling early and testing support, then recovering late in the session to hold above support on the close.
THE ECONOMY
Interest rates keep July housing market strong, setting another record (after June was revised lower).
New homes sales +6.7%, existing home sales +4.5%, both above expectations. Interest rates continue to drive sales as homebuyers find the cheapest rates in decades. Buyers continue to buy while they can and owners continue to refinance when they can. Competition for lenders is intense; many who refinanced just last year or the first of this year are looking at the numbers again as more and more lenders are offering refinancing at almost no cost. That makes getting a lower rate very becoming, and the cycle continues.
What can slow this housing market down? Its own weight eventually, but as of yet it has not been too burdened by its success. The real influence is interest rates. If rates start to rise, the housing boom will start to slow. It is very much like 0% financing on autos. In the fall auto sales were huge on no interest deals. When those were pulled late in the year and early 2002, auto sales slowed. When they were reinstalled, auto sales shot up and took gains away from nondurable goods sales in July. Buyers are looking for bargains long term, and low interest rates are a way to do it. Eventually interest rates will start to rise as a recovery is again priced into the economy as it was at the end of 2001 and early 2002. That will get the yield curve moving up again in a more 'standard' look for a recovering economy.
WMT, FD below August sales plan.
Retailers are at the low end of their sales plans for August, the back to school month. That is of course disappointing to those stores and adds fuel to the double dip recession fire. We still are not buying that. As we saw in July, consumers were still spending money, just not as much on nondurable goods as they were buying homes and autos. The same appears true for August with continued 0% interest autos and very low mortgage rates that helped set a record in home sales.
While that means that overall spending is not expanding, it is still holding at strong levels. It is just rotating from sector to sector; that is one indicator of a healthy stock market, i.e., when money does not leave the market but simply rotates between sectors. Applying that to consumer spending, it may not be the best scenario, but it does show that the consumer continues to consume. The consumer simply wants the best deal, and is willing to look and wait to get it. That is the new consumer mindset that has emerged post-boom.
THE MARKET
The rally came a day and a half late, after the Friday selling took several of our positions out of striking range of the target. Still the return of bullish intraday action was positive. Let's face it. Odds are volume is not going to be worth two shakes heading into Labor Day and even before 9-11, so bullish price action is the next best thing. It does not mean we go out and buy stocks anyway based solely on price movement, but it does show some upside underpinnings to the current rally. Those bullish underpinnings could carry the market higher on momentum and that can give us nice profits on our plays, volume or no.
The lack of volume makes the action a harder read from a longer term perspective, but again, there is not a lot you can do about that right now given it is late summer, Labor Day is coming, and September 11 as well. The action of individual stocks is good, however, with those tests at or below support and then finding buyers to carry them back over support on the close. Breakout stocks also held up after testing lower, a key aspect of any continued rally. And many good stocks we are covering are still in good patterns, etching out handles that usually precede breakouts.
With that kind of action in the best performing stocks there is no reason to assume the market is about to implode lower as some are suggesting. We too are cognizant of history where the market breaks down and tests prior lows again before moving higher, but as long as the good stocks are holding up we are disinclined anticipate selling just because it seems as if that would be the next move. In addition, note that the small and mid-cap indexes led the market action, up 1.5% and 1.4% respectively. When the big stocks took a breather, the smaller stocks stepped in. Indeed, breadth was excellent on the NYSE at better than 2:1. Mid-caps are looking stronger, rallying off of Friday's test of the 50 day MVA. The mid-caps look really good here, and several are on the report.
The final word is volume, however, and as noted, without much volume upside or downside the market is a harder read. Moves on light volume can be tossed aside when the entire world of investors is back town and working. Thus we stay with positions we have that are 'acting right,' but are being very selective with adding new positions; we want to see very good action to move in on those.
Sentiment Indicators
VIX: 32.29; -0.52
VXN: 48.42; +0.8
Put/Call Ratio (CBOE): 0.81; +0.01. Holding at a high level even as the market reversed and moved higher on the close.
Nasdaq
Tested the 18 day MVA on the low and then reversed to close back over the 50 day MVA. Nothing impressive, but the test of lower support and recovery was solid.
Stats: +11.12 points (+0.81%) to close at 1391.74
Volume: 1.428B (-4.77%). How low can you go? Bet it is lower before the weekend.
Up Volume: 785M (+537M)
Down Volume: 625M (-566M)
A/D and Hi/Lo: Advancers led 1.7 to 1. Not a bad recovery. The SOX was not a total drag Monday.
Previous Session: Decliners led 1.97 to 1
New Highs: 32 (+7)
New Lows: 52 (+1)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Monday put a bit of salve on the ugly price loss Friday. The 18 day MVA (1354.11) and August uptrend line held on the low and the index rebounded to overtake the 50 day MVA on the close (1389.74). With the low volume anything can happen, and recapturing the 50 day MVA by a point or two guarantees nothing. The March/April 2002 downtrend line is still just overhead along with the October 1998 closing lows (note that the intraday October 1998 low held on the Monday low). As can be seen, support and resistance is pinching together here. The candlestick pattern showed a doji with a long tail Monday, indicating that the sellers were in control early, but the buyers came back in and pushed stocks back up. After Friday's selling, the further reach down and subsequent reversal off of support is a positive. Nothing strong, just a return to positive action in the rally.
S&P 500/NYSE
Similar intraday action with a test of the 18 day MVA on the low and rebound to remain over the 50 day MVA.
Stats: +7.09 points (+0.75%) to close at 947.95
NYSE Volume: 1.006B (-4.71%). Very slow trade, the slowest since July 4.
Up Volume: 726M (+572M)
Down Volume: 265M (-644M)
A/D and Hi/Lo: Advancers led 2.39 to 1. Very positive NYSE breadth with the mid-caps leading the way.
Previous Session: Decliners led 2.03 to 1
New Highs: 38 (+16)
New Lows: 19 (+5)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps managed to hold the 50 day MVA (937.26) on the close, but ended the session snugged right up against resistance at 950 and the September 2000/May 2001 downtrend line. It was a quick move over that level last week, and now it is trying again for a third time in quick succession. As with the Nasdaq its candlestick pattern also shows a doji, but this one is a bit looser meaning the indicator is not as strong. Given the selling Friday and reach lower early Monday, the doji would indicate that the buyers swept back in, and thus short term there is upside momentum. That is tempered by that near term resistance, however, and the low volume makes clearing resistance more difficult. In short the large caps are at trendline crossroads without a lot of volume to establish the winning trend. A push up to 975 if it can clear 950 might be all it can muster for now.
Dow:
Stats: +46.05 points (+0.52%) to close at 8919.01
Volume: 1.006B (-4.71%)
The Dow did find footing at the 18 day MVA (8765.01) on the Monday low as we said it needed to do, and that helped pop it higher to close back over the 50 day MVA (8882.31). The same candlestick pattern as the S&P 500, and the test of support and recovery has the same modestly bullish implications. Still has that significant real and psychological resistance at 9000 to 9050. It has to clear that in order to finish out the run (?) up to 9,250. With the low volume there may be some banging around from 8750 to 9000 a bit before it makes a more definitive move.
The Chart: http://www.investmenthouse.com/cd/$indu.html
TUESDAY
Home sales were up, at least not hurting the market sentiment. Tuesday durable goods orders are out pre-market, followed by the consumer confidence report one half hour into trading. That will be a focal point for the Tuesday action and we won't get too aggressive either way until we see the numbers.
The near term key is how the indexes trade again at this near term resistance. Many are saying the market is ready to sell at this point now that it has run up almost 20% from the July low. Most everyone is looking for that, and thus there may be more upside here. Barton Biggs may be somewhat acerbic in his manner, but he made a good point Monday along the same line: that pat answer is to say there is a pullback from here and that could lead to an extension in the rally.
Again we are not going to run scared of our own shadow, and we will take positions as they present themselves because the market is showing predominantly bullish action though on light volume. That means, however, that we want to see some decent volume on the positions. Today we saw very little in that respect; some patterns continued to form up very well, however, and in that there is always the future of any rally.
One thing we do note: sustained moves in one direction on light volume (and that means up or down) usually get thrown the other way to some extent when the volume returns to the market. What does that mean in English? It means if we do have a continued rally up through Labor Day and even toward September 11, we would be very surprised to see the rally continue when everyone gets back to work when the 9-11 anniversary is over. Thus we could see the rally continue on this light volume, doing this up a few days and back a day or two stair-step in the meantime. That will take our current positions to or near targets; perfectly fine with us.
As for new positions we will be very selective. Again, there are some excellent patterns on the report, and those tend to make the breakouts with more volume. Why? Because they have been undergoing accumulation all the way through the base, and then when the last sellers are shaken out demand outstrips supply. Investors want those stocks. Those are our focus as always, but even more so as this market works through this low volume.
Support and Resistance
Nasdaq: Closed at 1391.74
Resistance: The 50 day MVA (1389.74) has still not been totally cleared. The March/May downtrend line at 1395. 1418, the interim test after the September low. There is another downtrend line from the March and May highs at 1463. That is followed by price resistance at 1500.
Support: The August uptrend line (1380) is possible. The 10 day MVA (1371.70). 1357.09, the October 1998 bear market low. The 18 day MVA (1354.11). The top of the wedge pattern at 1354.48. Some price support at 1300. The July lows at 1240 to 1230. Price support from 1190 to 1200 (the July intraday low is 1192.42).
S&P 500: Closed at 947.95
Resistance: The September 2000/May 2001 downtrend line at 950, and that barrier that was hard to break. 965, the September 2001 closing low. The next downtrend lines from March and April highs at 973. Then 1000 is psychological resistance.
Support: The 50 day MVA (937.26). The 10 day MVA (935.10) and the 18 day MVA (922.99). The top of the wedge at 911.64. The March down trendline at 913. The July up trendline at 903. The lowest channel line in the March downtrend channel (847). 850 to 855 has previously held (the October 1997 and Q2 1998 lows). 800 is next. Then the July low at 775.68. 750 to 760 with an intraday touch to 730.
Dow: Closed at 8919.01
Resistance: 9000 to 9050. A range of resistance from 9000 to 9500, but specifically 9250 and then 9500.
Support: The 50 day MVA (8882.31), but it is still very close. The 10 day MVA (8849.06). The 18 day MVA (8765.01). The late July high that is the top of the ascending wedge at 8762.14. The March down trendline at 8695. The July uptrend line (8575). The May down trendline (8240) and the lowest bottom channel line of the March downtrend (8265). 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
8-26-02
New home sales, July (10:00): 1.01M actual, 975K expected, 953K prior (revised from 1.001M).
Existing home sales, July (10:00): 5.33M actual, 5.30M expected, 5.10M prior (revised from 5.07M).
8-27-02
Durable goods orders, July (8:30): 1.4% expected, -4.1% prior.
Consumer confidence, August (10:00): 97.0 expected, 97.1 prior.
8-29-02
GDP Preliminary, Q2 (8:30): 1.1% expected, 1.1% prior.
Initial jobless claims (8:30): 385K expected, 389K prior.
Help wanted index, July (10:00): 47 prior.
8-30-02
Personal income, July (8:30): 0.3% expected, 0.6% prior.
Personal spending, July (8:30): 0.8% expected, 0.5% prior.
Michigan sentiment final, August (9:45): 88.0 expected, 87.9 prior
Chicago PMI, August (10:00): 52.0 expected, 51.5 prior.
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SUBSCRIBER QUESTIONS
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End Part 1 of 2
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