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us stock market, trade stock
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9/09/02 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS:
Targets hit alerts issued Monday: None issued
Buy alerts issued: GDT; CLE; MSFT; PFE
Trailing stops issued: None issued
Stop alerts issued: ISLE
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:
- Volatility reigns as market swings 180 degrees intraday.
- Wholesale inventories rise as computer shipment forecast plunges.
- Team Trades
Wide swings again mark trading action.
Started soft, got worse, then recovered the losses and closed sharply higher. The pre 9-11 trading action is mimics a long volley at the U.S. Open tennis tournament. In the market, however, no side can seem to get the upper hand, though the bulls enjoyed two consecutive sessions of gains, a rarity of late.
Monday's recovery build on Friday's gains, but there was no volume and the indexes closed just below their short term moving averages, stopped dead in their tracks at that point. There is not a lot of upside power, i.e., strong buying activity, but nonetheless the market refuses to roll over and really sell off even as it struggles each time it nears resistance. The buyers and sellers go toe to toe each session and neither can deliver a knockout blow even in the short term. If the U.S. makes it through 9-11 without any major hit on a U.S. facility, the market could really move upside, at least until the planes start flying against Iraq. At that point we can expect a quick sell off as is typical when military action is initiated.
Given this action it is easy to get whipsawed, and that happened to us on some positions Monday. That is why we are keeping a lid on activity ahead of 9-11 unless we see what we consider a really strong move. Even then, however, an apparent strong move in this market can be pushed right back at you.
THE ECONOMY
July wholesale inventories rise 0.6% (+0.2% expected, +0.3% prior).
Inventories at the country's manufacturing companies rose in July for the second straight month, and that set off more speculation that the recovery is slowing. Higher inventories can be caused by slower sales (i.e., less demand), higher production rates, or a combination of the two. In this economy the first conclusion is slower demand, and that is the way the market took it early on. When the number came out the indexes started lower, paused, and then sold harder.
Which one is it, slower sales or just ramping up production? Looking at the ISM and regional PMI numbers, manufacturing is not picking up but is backing off the stronger expansion seen earlier in the year. The sectors are still expanding, but we saw new orders dip below 50 and generally slower manufacturing activity. With that background, the inventory overhang in July appears based in slower sales at the wholesale level; certainly manufacturing has not produced a surge of new products as it has been backing off.
This was a July number, a month when consumers turned from non-durables to items such as autos and durable goods. Thus there is some explanation for the rising wholesale levels in the non-durables. Indeed, the auto companies are going to ramp up production in response to the successful return of 0% financing. Thus while there appears to be slowing sales that are producing the inventory overhang in certain areas, the consumer has not left; the consumer is simply refocusing on other areas. At some point, however, the consumer will have to slow down if the economy does not pick up. The consumer will always consume, but if the slow economy continues long enough, the pace will slow down if jobs are not replaced.
THE MARKET
Two consecutive up sessions and it took a sharp intraday reversal to do it. That is the best upside action in awhile, and it quells speculation about widespread investor fear ahead of the 9-11 anniversary. Indeed stocks overcame early weakness to turn and rally most of the session when there was not a lot of positive news to underpin the move. That is a change from the past week where the market followed each news story up and down.
The Monday move pushed the indexes up to the short term moving averages where they stalled out on very low volume. If Monday was a push off of the recent lows, it was not a strong push. Looking at the index patterns for the past 6 weeks, all three major indexes are right at their highs before the late August bump higher. Their patterns look very much like head and shoulders patterns where they are just starting to roll over on the right shoulder. Of course the pattern is not complete and they could blast right up from here. Most likely they will fall lower Tuesday and Wednesday; if nothing happens, however, will the indexes automatically rally? Perhaps they have already looked at 9-11 and don't think much is there. That still leaves, however, the same old worries about war and the weak recovery. You know, nothing big, just the usual post-boom problems.
Sentiment Indicators
VIX: 38.4; -1.64. Sliding lower on the move higher. Still very active, and on any selling it will most likely move right back up.
VXN: 55.47; -1.07
Put/Call Ratio (CBOE): 0.84; +0.05. Staying a the higher end of the range, rising on a session that ultimately turned to the upside.
Nasdaq
Lagged the Dow and S&P 500, moving up to resistance on very low volume.
Stats: +9.3 points (+0.72%) to close at 1304.60. Edging higher, right up to the 10 day MVA on the close.
Volume: 1.249B (-5.57%). Like a summer Monday, volume slid even lower than Friday. That makes it easier for one side to drive the market as seen Monday.
Up Volume: 576M (-518M)
Down Volume: 652M (+463M). Even on an up day, downside volume was in the lead. A negative divergence that could mean when the selling returns it gets severe.
A/D and Hi/Lo: Decliners led 1.04 to 1. Decliners led on an up day. Yes there was a reversal, but it was not a strong session.
Previous Session: Advancers led 2.26 to 1
New Highs: 35 (+9)
New Lows: 110 (+26). New lows climbing on an up session. Another indication that the move higher was very weak.
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq tested down to 1270 on the low in the first hour selling, and then reversed and rallied to 1310.33 on the high. That was above the 10 day MVA, but the index backed off at the close to finish just below the 10 day (1307.57). The first reaction is 'what a recovery,' and so what if it stopped at the 10 day MVA after a big turn around. It was the second straight gain on falling volume, however, volume lower than the prior selling volume. The Nasdaq had sold down since peaking on 8-22 (9 prior sessions), and this rise on lower volume is more of a relief bounce from that selling after the SOX hit a new multiyear low. This has all of the classic earmarks of a relief bounce after that selling. Moreover, looking at the pattern from late July to present, there is a definite left shoulder in late July/early August, a head that peaked on 8-22 at 1426, and a right shoulder forming the last week. The dip in the first part of the shoulder was not all the way to 1206 (the prior closing low), but the move up the past two sessions is on that low volume and is right at resistance in the form of the short term moving averages. The pattern has not completed, and head and shoulders patterns are notoriously volatile, but we cannot ignore the action and pin hopes on the lower volume rise the last two sessions. If nothing else it would appear that the Nasdaq comes back to test the recent lows near 1200; low volume rallies are also notorious, and the reason is they are prone to failing.
S&P 500/NYSE
Similar action on all the major indexes, a second session of gains that moved up to the short term moving averages and prior price resistance on lower and lower volume.
Stats: +9.04 points (+1.01%) to close at 902.96. A better gain than the Nasdaq, but not much better action.
NYSE Volume: 1.139B (-2.73%). Second straight session of gains on lower volume. Declining volume rallies tend to fail once they meet real resistance.
Up Volume: 785M (-72M)
Down Volume: 336M (+6M)
A/D and Hi/Lo: Advancers led 1.33 to 1. Advancers edged out a gain on an up session. Not stellar, but better than the techs (not saying much there).
Previous Session: Advancers led 2.61 to 1
New Highs: 73 (+8)
New Lows: 41 (+12)
The Chart: http://www.investmenthouse.com/cd/$spx.html
878ish has been holding as some support over the past week, right at the August midmonth low. It has now pieced together two consecutive up sessions, rallying to the 18 day MVA (908.75) on the high and then closing below the 10 day MVA (904.53). As with the Nasdaq, two lower volume up sessions stalling a bit at resistance on the close; lower volume moves up tend to end at resistance, and the pattern is quite similar to the Nasdaq's attempted head and shoulders with the top of the right and left should marked by the late July high (911.64). Again, these patterns are not all that reliable, especially when completed, but they do show the 'toppiness' of the index, and accentuate the low volume move up to near resistance the past two sessions. Volume has been capped no doubt due to the 9-11 anniversary, but there are not many buyers in the market. It may test up to the 18 day MVA again early Tuesday, but we expect the index to turn lower at this resistance.
Dow:
Stats: +92.18 points (+1.09%) to close at 8519.38
Volume: 1.139B (-2.73%)
The Dow is making an even lower high than in August on this move (if it stalls here) as it hit the 10 day MVA (8541.35), rallied above it (8558.01) and then pulled back to close. Volume was lighter as well as it continued its move from Friday off of support at 8250. It tried to give it all back, but held on for a late session rally as the financial issues turned around and gave it a boost. It may have some more upside here toward the 18 day MVA (8598.26) as it held fairly steadfast at 8250. Overall, however, it is lagging, and if the S&P 500 stalls out here as anticipated, the Dow will most likely follow.
The Chart: http://www.investmenthouse.com/cd/$indu.html
TUESDAY
Monday did not produce the move lower, at least through the close, we were looking for. The pre 9-11 trade is very volatile, neither selling off nor rallying sharply on any kind of conviction. Again, the index patterns look very toppy as they made that early August top, the mid August higher top, and now this weaker move up on light volume to test that first top. After 9 sessions of selling from the August 22 peak the indexes have established some support at the recent lows and are attempting to move up off that level. Instead of showing extra nervousness about 9-11, they are acting just like standard markets: they topped, sold, and are now bouncing in relief. It looks like a relief move as the volume is very low.
Has the market already priced in 9-11? Seems more like the market has already priced some incident in and is now bouncing back somewhat. While this is pure speculation, we don't expect anything to happen of significant consequence. The terrorists do not have the unfettered ability to plan and move in the U.S., and that limits the likelihood of a major event. The market appears to have taken that position.
So, let's look at what is left: the Iraq war potential and a slowly (very slowly) mending economy. Those are weighing on the market as well. As such and after Monday's action, we are viewing the market more in a plane old technical sense, i.e., it sold off from a peak made on light volume, it bottomed some and has made an even lighter volume bounce. After this bounce it looks ready to sell back down.
That may be too pat of a view, but the market is not trading like a new bull market. There has been no surge of buying that accompanies new bull runs. Sure there was follow through to the reversal off the July lows, but it was on relatively low volume compared to the selling. The selling was strong (though not blowout) and the recovery on some rising volume, but there was no flood of institutions or other big money racing to get in the market for fear of missing some upside. Stocks are breaking out, but whether the move sticks is an iffy proposition. Without that conviction from big money and the willingness to buy into breakouts, this rally is not the rally that sets the turn off the bottom. That may happen after that slow, light volume settling back to the prior lows we have been discussing, but again, there will need to be that upside conviction, that big upside buying. Maybe a 9-11 nonevent will provide the catalyst for a dramatic re-entry into the market by the big money; without a further test of the lows, however, we doubt it at this point. There is still that war with Iraq and lingering questions about the economy to work through one more time.
Thus while pre 9-11 may not bring much downside action in and of itself, the low quality bounce up off the recent lows sets up more downside unless there is some real upside catalyst. Maybe a 9-11 non event would do that, but we don't think so. There are still a lot of other problems out there as noted before, and this move has just not garnered any real buy side support. Many, many stocks, including the major indexes, are back up at resistance levels on lower volume. The recent action has been frustrating for the upside (some breakouts work, some don't) and the downside as well (creeping higher on lower volume). Looking at the technical patterns and the ongoing problems facing the market, we are still looking for a test of those July lows in the coming weeks without much more upside.
Support and Resistance
Nasdaq: Closed at 1304.60
Resistance: 1300 is price resistance that has not been totally cleared (the long arm of resistance). The 10 day MVA (1307.57) followed by 1316, an early August interim high. Then the 18 day MVA (1318.37). The late July high (1354.48) and 1357.09, the October 1998 bear market low. The March/May downtrend line at 1358. The 50 day MVA (1362.73). 1418, the interim test after the September low. There is another downtrend line from the March and May highs at 1427. That is followed by price resistance at 1500.
Support: 1260 provides some support from recent lows. Then 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 902.96
Resistance: Price resistance at 900. The 10 day MVA (904.53) and the 18 day MVA (908.75). The top of the wedge at 911.64. The 50 day MVA (926.75). The July up trendline at 944. The September 2000/May 2001 downtrend line at 937 followed by 950. The next downtrend lines from March and April highs at 956. 965, the September 2001 closing low. Then 1000 is psychological resistance.
Support: The March downtrend line at 896. 875 continues to provide a rest stop for the index. Then 850 to 855 has previously held (the October 1997 and Q2 1998 lows). The lowest channel line in the March downtrend channel (824). 800 is next. Then the July low at 775.68. 750 to 760 with an intraday touch to 730.
Dow: Closed at 8519.38
Resistance: 8500 is some resistance. The March down trendline at 8530. The 10 day MVA (8541.35). The 18 day MVA (8598.26). The late July high that is the top of the ascending wedge at 8762.14 (8745 closing). The 50 day MVA (8773.40). The July uptrend line now at 8885. 9000 is key on up to 9050. A range of resistance from 9000 to 9500, but specifically 9250 and then 9500.
Support: 8250 continues to act as some price support down to the September closing low at 8235.81. The lowest bottom channel line of the March downtrend (8100). 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
9-09-02
Wholesale inventories, July (10:00): 0.6% actual, 0.2% expected, 0.3% prior.
Consumer Credit, July (2:00): $10.0B actual, $9.2B expected, $8.4B prior.
9-11-02
Fed Beige Book
9-12-02
Initial jobless claims (8:30): 400Kexpected, 403K prior.
Export nad Import prices, August (8:30)
Current Account Q2 (8:30): -$125.0B expected, -$112.5B prior.
9-13-02
Retail sales, August (8:30): 0.4% expected, 1.2% prior.
Retail ex-Autos (8:30): 0.2% expected, 0.2% prior.
PPI, August (8:30): 0.2% expected, -02% prior.
Core PPI (8:30): 0.1% expected, -0.3% prior.
Michigan Sentiment preliminary, September (9:45): 87.9 expected, 87.6 prior.
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TEAM TRADES
PFE: A put play we had an eye on after a big Friday drop on much stronger volume, PFE was heading down again Monday on solid trade. At 10CT it broke down, ran to the buy point, rallied, and then rolled over again. We were ready and jumped on with some puts. They were trading at 4.80 by 4.90, but then the ask was bumped to 5. It ran up to 5.20 as the stock fell to 30.30. It bounced, and we put in a limit order at 5.10; that means we were willing to pay 5.10 or less. As it turned out, we paid 5.00 for the options. Our timing on this trade was less than great. PFE looked ready to head even lower, but then started moving up about a half hour later with the market. It spent the rest of the session rallying back the open price before it faltered at that point and started to slide back in the last half hour. The options closed at 4.60 by 4.80. We never like to start a position in the red right after entering, and this is no exception. We will continue with the position as it too shows the same pattern as the overall indexes and should move with them.
End Part 1 of 2
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