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us stock market, stock trader
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8/27/02 Technical Traders Report Update
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Technical Traders Report Subscribers:
MARKET ALERTS:
Targets hit alerts issued Tuesday: None issued
Buy alerts issued: None issued
Trailing stops issued: None issued
Stop alerts issued: UNTD; CVH; HGSI
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, sell late. No buyers to rescue the market Tuesday.
- Some distribution as NYSE and Nasdaq volume expands on selling.
- Economic news is good and good despite the spin put on it.
- Nasdaq breaks uptrend line, S&P 500 holding on.
Action flip-flops again as market sells to session lows.
The market is definitely struggling at resistance. It is bouncing up and down each session, selling at the close and then rallying at the close on alternate days. Indecision reigns here at interim resistance. Not enough buyers to push it definitively higher, and not enough sellers thus far to take it down despite the belief voiced each day on the financial stations that the market has topped out. Perhaps is it simply doing some more consolidating after a strong move.
There are some trouble signs, however, as the indexes sold on rising volume Tuesday meaning that there were more sellers in the market than the recent buyers. That is the second such session in the past 6 sessions on the NYSE and the second on the Nasdaq in the last 11 sessions. Another session or two of higher volume selling could spell trouble for the rally and put an end to consolidation attempts and send things lower. Some of the breakout stocks had a rough go of it Tuesday with CVH, TTWO and others selling on rising volume. If they leading stocks fall in conjunction with market distribution, that is the surest sign of trouble. Right now the indexes are trying to consolidate but are losing some footing with the stronger selling.
Good news trumped by bad news.
One sign of strength characteristic in the rally is the ability to overlook bad news. Tuesday bad news teamed up and overran any buy side interest. Intel made very lukewarm comments about its current business activity and what Q4 held. Merrill Lynch downgraded 13 retail stocks based on the premise that they have more or less run their course and could not go higher. These stocks were just working on good bases, and this threw cold water on some and sent others in a weaker state hurtling lower on rising volume.
Better durables orders overcame that early negative bias, but then consumer confidence and the Congressional Budget Office report on the deficit overran the good news. The budget talk is really a political debate where each side will try to make hay out of what it is and what it means. There is so much misinformation spouted about what a deficit means and how it impacts the economy. Listening to two people talk on it this afternoon was mind boggling; the 'facts' and conclusions drawn by both sides bear no resemblance to historical events. How does that impact the market? Just uncertainty about the course of action. The market wants to know if tax cuts will be kept in place or taken away. That uncertainty just adds more uncertainty to the current indecision at resistance.
The market did not turn tail and tank hard on what was perceived as bad news, but it did slide lower on rising volume. Cracks are showing up; it is not falling apart, but cracks are there.
THE ECONOMY
Durable goods surge 8.7% with capital spending even stronger.
A volatile number so it was discredited some. No doubt volatile as June was a 4.5% decline. But remember what we have said about volatility and trends: volatility is a sign of change. After limping along durable goods orders shot higher. Such a large gain is something to note in and of itself as well as the strength of individual components.
Take out transportation and the number came in at +3.9%, very respectable (those auto sales still strong) and much better than -13% in June. Individual sectors were very hot. Computers +14%; telecom equipment +10%. Non-defense capital spending, a good proxy for business spending, jumped over 13%. The numbers were so big it is a sign of expansion in progress. It was enough to reverse negative futures to positive.
But August consumer sentiment has the final say Tuesday.
Well below expectations at 93.5 (97.1 expected and 97.4 in July), confidence through cold water on the rally attempt. Monday we indicated that confidence numbers would be the focus, and when added to the INTC comments and the retail downgrades, upside momentum was tipped like a cow at night.
The numbers were less than expected, but we have realize they were not bad at all. Investors (and that includes the biggest ones, the institutional investors) are looking for the Holy Grail and they are not going to find it. In other words, they want to be told everything is roaring along and we are back in the late nineties. Reality: we are in a more or less typical recovery. Indeed, consumer sentiment numbers are extraordinary given the circumstances the past year starting with 9-11.
What most people don't know or remember is that when things get bad in the economy, sentiment numbers are in the 40's and 50's. Not 40 + 50 = 90, but 40 to 50, half or less of what the numbers are showing now. Sentiment in the 90's is considered very good. It suggests a level where consumers will continue to consume retail goods, buy autos, buy homes, go out to eat, add on a room this year, paint the house blue instead of yellow, take that vacation, etc. Expectations (looking out the next 6 months) dropped just 1.5 points, and that is still very good. Many fund managers that just got in the game in the last 10 years are addicted to blowout numbers and they have a problem when they don't see them.
Key: there are a lot of calls out there saying either there is going to be a boom or there is going to be a bust. Reality is going to fall in between. Reality is what the numbers are showing. There is no imminent collapse and there is no boom. There is steady, solid ongoing growth that is just now starting to show business capital spending. It is thus very important to continue monetary and fiscal stimulus to keep this going and not choke it off.
THE MARKET
Even with good economic news (yes the consumer confidence was good news) investors of all stripes were not interested in stocks Tuesday. They were not overly interested in selling them either, though volume rose and some sectors that had been performing well until this week were hit, e.g., biotech.
The Dow and S&P 500 managed to hold onto the 18 day MVA, but the Nasdaq undercut its 50 day MVA, breaching near support on some higher volume. But for the higher volume the action would not have been all that bad. The Nasdaq move is not good action and it can lead to a further fall, but breaks of support are not always clear cut. Time and again in the downtrend the market would make a new low and look ready to really fold only to rally right back up. When an index or stock breaks a key level on higher volume you always have to be ready to act, but it can also lead to a quick bounce back up. The Nasdaq has been under the most pressure with the SOX weighing it down; the SOX is getting near 300 again, however, and that could spark buy side interest once again as that level has acted as interim support more than once.
Sentiment Indicators
VIX: 32.73; +0.44
VXN: 50.01; +1.59
Put/Call Ratio (CBOE): 0.84; +0.03. Ratio remains on the high end.
Nasdaq
While the Dow and S&P 500 still move in more of a lateral consolidation, the Nasdaq has taken on the appearance of a top at just over 1400 (the October 1998 closing low) as it undercut the 18 day MVA slightly Thursday with some rising volume.
Stats: -43.96 points (-3.16%) to close at 1347.78
Volume: 1.504B (+5.28%). Rising volume on selling, the second in 11 sessions. That is not a terrible ratio, but the index has formed a mini head and shoulders at 1400 and is falling on some rising though still below average volume.
Up Volume: 343M (-442M)
Down Volume: 1.15B (+525M)
A/D and Hi/Lo: Decliners led 2.12 to 1. When the market has sold two of the past three sessions, decliners have topped advancers 2:1. Souring action.
Previous Session: Advancers led 1.7 to 1
New Highs: 38 (+6)
New Lows: 57 (+5)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Monday's recovery was an interlude in the fall from the peak last Thursday when the Nasdaq looked solid, rising to post July highs on the strongest volume in over a month. That move took it up to the October 1998 bear market closing low, and as one reader pointed out, that is where it failed in mid-July as it was trending lower and tried a bounce up. As quick as it rallied on high volume it rolled over and Tuesday showed a distribution session as it edged below the 18 day MVA and the August uptrend line. There is a shelf of support at the late July closing high (1344.19), but if the Nasdaq cannot immediately turn up Wednesday, it is more likely to hit 1300. The very short term pattern (the past 7 sessions) is a head and shoulders about 50 points high. That simply shows the negative momentum rising when the index immediately fell from last week's high and made a lower high. Again, it needs to turn right back up or it is going to do the test lower toward 1300 as a first point.
S&P 500/NYSE
The S&P sold on rising volume as well as it too made a lower high at 950 resistance. It is still holding onto near term support.
Stats: +0.07 points (0%) to close at 934.82
NYSE Volume: 1.245B (+23.7%). Significantly higher (though still low) volume on the selling, the second distribution session in the last six. Another session Wednesday or Thursday is a problem.
Up Volume: 382M (-344M)
Down Volume: 850M (+585M)
A/D and Hi/Lo: Decliners led 1.51 to 1. Not as strong a kicking as the Nasdaq received, and well off the pace of advancers on recent upside sessions.
Previous Session: Advancers led 2.39 to 1
New Highs: 62 (+24)
New Lows: 17 (-2)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The 10, 18 and 50 day MVA are all bunched up, and the S&P 500 undercut the 50 day MVA a hair (937.16) as it closed on the 10 day MVA and held above the 18 day MVA. As noted, it is in more of a consolidation pattern than the Nasdaq, moving more laterally along the short term moving averages. But for the Nasdaq action this would be acceptable. It is still acceptable for now but the price/volume action is worsening not improving. You want to see the volume continue to fall on downside days during a consolidation as that shows there are not many sellers. Rising volume means more are selling shares and that opens the door to the bottom of the consolidation. Next support below the 18 day MVA is the July up trendline near 911 and then 911 to 900. If the trendline is broken, the test of the July low is on.
Dow:
Stats: -94.6 points (-1.06%) to close at 8824.41
Volume: 1.245B (+23.7%)
In a somewhat mirror of the S&P 500, the Dow is trying to consolidate laterally over the short term moving averages, testing the 18 day MVA on the low (8782.03) and rebounding slightly. As with the S&P, that would be good action but for the rising volume on the selling. Also note that it also tested 9000 once again on the high as if just to check that it was still resistance and then dumped back lower. Tuesday's action took it down to key support not only at the 18 day MVA. The late July closing high at 8736 and the early August high at 8745. That is an important level, followed by the July up trendline at 8625. For this rally to continue, those are the levels the Dow must hold.
The Chart: http://www.investmenthouse.com/cd/$indu.html
WEDNESDAY
No economic news Wednesday but HPQ announced earnings after hours and matched the bottom line but was light on revenues. It was up early and then tailed off, still higher than the close. Definitely not enough to ignite enthusiasm. Futures after hours certainly were not thrilled.
Friday is the end of the month for stocks and that has led to solid upside moves in stocks as hedge funds close out positions and balance out their fund for the new months. Question is, where does the market go before that. The Nasdaq is being hit hard, dragged around the neck by the SOX. Many key SOX components are approaching their August lows and a few are already there (e.g., KLAC). They are spearheading the Nasdaq fall with the SOX just 16 points from 300, a level of some support and just above its July low at 283.91. Unless the SOX is going to collapse totally that will slow the move. At the least we can expect to see some buying interest at that point.
Tuesday action exposed cracks in the recent move. Indexes ran into resistance again and then sold on rising volume. Leading stocks ran into trouble and sold on heavy volume. Classic signs of a rally that is gasping a bit. The Nasdaq has already broken its uptrend line from August; it was not the leader off the bottom, falling back and undercutting the July closing low before rallying. It is leading to the downside and the key will be whether the S&P 500 can put on the brakes at its uptrend line that is even with its late July high or even higher.
Though there are stocks that are falling back after breaking out or are falling apart in their patterns, there are still many stocks out there that look good. The issue is getting them to move on volume sufficient to get us into them upside. If the volume is not there, as soon as something negative hits the market those few buyers are gone and the stock has serious problems. You want stocks that have the support of committed buyers that want to hold the stock; that shows up in the accumulation during the base and the strength of the breakout.
There are still good patterns out there, but we have not been entering many of late because they are moving without a lot of volume. In this market we continue to look at good stocks but we have to be very selective as the market consolidates at resistance. As for the upside what we do is keep an eye on those stocks that continue to hold their patterns during the choppy action; those will be the ones to make the strong moves when the consolidation or pullback is over.
Support and Resistance
Nasdaq: Closed at 1347.78
Resistance: The 18 and 10 day MVA (1353.45 and 1367.35, respectively). 1357.09, the October 1998 bear market low. The 50 day MVA (1388.10) and the August uptrend line at 1386. The March/May downtrend line at 1386. 1418, the interim test after the September low. There is another downtrend line from the March and May highs at 1460. That is followed by price resistance at 1500.
Support: The top of the wedge pattern at 1344.19. Some price support at 1300. After that, 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 934.82
Resistance: The 50 day MVA (937.16) is some resistance. The September 2000/May 2001 downtrend line at 949, and that barrier that was hard to break. 965, the September 2001 closing low. The next downtrend lines from March and April highs at 967. Then 1000 is psychological resistance.
Support: The 18 day MVA (924.23). The top of the wedge at 911.64. The March down trendline at 913. The July up trendline at 911. The lowest channel line in the March downtrend channel (846). 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 8824.41
Resistance: The 50 day MVA (8880.04). 9000 to 9050. A range of resistance from 9000 to 9500, but specifically 9250 and then 9500.
Support: The 18 day MVA (8771.27). The late July high that is the top of the ascending wedge at 8762.14 (8745 closing). The March down trendline at 8675. The July uptrend line (8625). The May down trendline (8220) and the lowest bottom channel line of the March downtrend (8240). 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): +8.7% actual, 1.4% expected, -4.4% prior (revised from -4.1%).
Consumer confidence, August (10:00): 93.5 actual, 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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End Part 1 of 2
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