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9/11/02 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS:
Targets hit alerts issued Tuesday: None issued
Buy alerts issued: MTG; PEG
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:
- Early rally continuation reverses and closes at lows.
- Fed sees little economic improvement even as mortgage applications hit record pace.
- Real action begins Thursday, and after intraday reversal, the 9-11 patriot rally may be over.
- Team Trades
Subdued session to honor the day.
Last year when I sat down to write the 9-11 column I could barely find the words to start. I had taken my family on vacation high in the Rocky Mountains. We had arrived just the day before the attacks. Stunned and shocked, we struggled along with everyone to get our emotions under control. Looking out my window over the backbone of America, I felt the strength of our country rising; with a land so beautiful and people so forthright it was clear to me we would not waver. I let my fingers just start typing through the shock and pain and the words flowed.
Today we all saw the images, remembered the painful hours, remembered those that never came home. It would have been appropriate to close the market, to just reflect on those who gave up so much doing what we all believe in: hard work, individual sacrifice, compassion. It was more appropriate, however, to show those that would try to destroy those beliefs our strength of character and the strength of our country's conviction. Pausing to remember, pausing to gather our strength, and then going about the business of America was the thing to do.
Market puts on a good face but then gives it back late.
We were almost believing in the talk of a patriotic rally as stocks continued higher Wednesday, continuing the bounce up after the 2 weeks of selling. As the final hour approached, however, stocks could not hold their gains. In the end the fight was holding positive, then holding the 18 day MVA. Reality seemed to set in during the last hour, the reality of potential war with Iraq, the economy, and the fact that the President and the Fed chairman would both speak on those subjects Thursday.
THE ECONOMY
Thursday Greenspan addresses the House Budget committee regarding the state of the economy. The Beige Book released Wednesday was no great shakes: strong autos and homes offsetting weak retail and business spending along with a continued weak manufacturing sector. Greenspan won't diverge from the path. He won't give any idea on rate cuts either way, he won't say things are great, he won't say things are bad. He will attempt to appear neutral yet again in public, but we all know he is anything but neutral.
He has at least two market crashes under his belt (tattooed to his forehead?) starting with the 1987 dive and then the economic implosion in 2000. He claims to have been unable to do anything about the rise and fall of the economy and the market, but he did what he could to tank it after he hyper inflated it with the massive, massive monetary injection ahead of Y2K that sent the market on a ballistic final surge that ended with an equally deep and sickening plunge. If he could not tell there was a problem or felt he could not do anything about it, why not just let market forces work? The result would no doubt have been less catastrophic if the market found equilibrium itself without being artificially pumped up with a huge money supply, then torn down when that money was yanked back and interest rates were jacked up simultaneously. No, do not expect any leadership from Greenspan. That is not the 'maestro's' MO.
Mortgage applications surge 16.9% in a record month.
Low interest rates certainly have one plus: people buy when they feel they have a bargain (the discount mentality of the U.S. has firm roots). With mortgage rates at 40 year lows as many people as can are buying houses. The top end of the housing market has softened. What we are seeing now is the lower and middle range posting the big sales. This is the latter stage of the housing boom. It does not mean the market is cratering right now, but it is a typical cycle: High end homes are the first to heat up in a housing cycle. Then middle range and vacation homes. Then lower end. The middle and lower end are really moving right now.
The low rates are keeping the housing market alive, and that in turn is keeping the economy alive when there is little other investment occurring in the U.S. It is ironic and somewhat telling about the economy that even as mortgage applications hit a record high, mortgage delinquency is at an all-time high (4.77%) as are mortgage defaults (1.23%). The easy answer is that there are more homeowners today so there will be more defaults and delinquencies. The refinancing boom, however, was supposedly freeing up all this money and wealth. You would think that those in default would refinance and roll the costs of doing so into the new mortgage and thus reduce the monthly payment, making the monthly nut easier. You can bet many have done that and are still in trouble. That does not speak well of the economy.
You can rationalize the numbers away, but that does not change the fact that defaults and delinquencies are at all-time highs. Thus we need to avoid the cavalier approach that there are no problems in the housing market and thus the overall economy; that is what got us into trouble when the economy was slowing down. We were writing everyday about the changing economic trends, but the common idea was that the economy was so strong it needed to cool a bit. Any ticks lower were 'aberrations.' We cannot be lulled into any sense of false security that the housing market will keep on at record pace month after month and thus save the economy. Using Greenspan's own words, the economy is suffering from internal 'imbalances', i.e., some sectors are at boom levels while others are holding at sustained bust levels. That cannot continue and result in a healthy economy.
Dollar at 2-week high against Euro.
One economic plus is the firming dollar, an indication that the market is reading a bit more positive momentum in the U.S. economy. The bond market is not, however, something we will delve into deeper in the weekend edition.
THE MARKET
The market was continuing the rally started last Friday, mostly on guts. The Nasdaq opened at 11:00ET, the NYSE about a half hour later. The bifurcated action was somewhat confusing, but stocks continued their buoyancy.
After tapping near the 50 day MVA early in the session, however, the indexes started to slide, and in the last hour they undercut the session lows and finished at the bottom of the trading range. The candlestick patterns formed are known as 'tombstone' doji's, a sign of potential reversal after a move up. What has happened: buyers took over as the move higher started. They kept pushing prices higher. Then on the reversal day they were out in front again, but then sellers came in and pushed the index down to close where it started. In short, sellers caught up with and overtook the buyers on that session. That shows a swing in momentum that can signal the end of a run. That is why we pay so much attention to candlestick patterns as they can clue us in so well as to momentum shifts.
There was no high volume that is a real signal of a reversal, but it was a shortened session and volume was expected to be light. The pattern is very worth of consideration, however, because it reversed after tapping a key resistance point (the 50 day MVA), and the indexes were unable to overcome the late July and mid-August interim highs. Those too are key resistance points, and the light volume rise makes it difficult to clear such resistance. This very possibly marks the turn back down after this low volume rise. Indeed, making it through the day without a terror incident and then seeing the market fall still is somewhat telling about the near future.
Sentiment Indicators
VIX: 37.23; +0.27
VXN: 54; +0.93
Put/Call Ratio (CBOE): 0.69; +0.01
Nasdaq
A reach higher that could not hold the move when it got to important resistance.
Stats: -4.64 points (-0.35%) to close at 1315.45
Volume: 1.077B (-25.39%). Don't take much from the light volume in the short session.
Up Volume: 668M (-258M)
Down Volume: 389M (-2M)
A/D and Hi/Lo: Advancers led 1.01 to 1. Held onto a gain by 11 stocks. Even when the index was higher early in the session it was still very weak.
Previous Session: Advancers led 1.14 to 1
New Highs: 22 (-7)
New Lows: 56 (-31)
The Chart: http://www.investmenthouse.com/cd/$compq.html
After edging over the 18 day MVA (1318.22) Tuesday, the Nasdaq reached toward the 50 day MVA (1359.27) and late July high (1354; 1344 closing) and then reversed course. On the close it was back below the 18 day MVA. Without a major terror incident, the rollover and fall is an indication that the relief rally is having some trouble.
S&P 500/NYSE
Moved up sharply as well, tapped near the 50 day MVA and then fell to show a doji on the candlestick chart.
Stats: +0.07 points (0.01%) to close at 909.45
NYSE Volume: 852.388M (-25.68%)
Up Volume: 472M (-197M)
Down Volume: 374M (-105M)
A/D and Hi/Lo: Advancers led 1.26 to 1
Previous Session: Advancers led 1.3 to 1
New Highs: 47 (-43)
New Lows: 18 (-17)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Rose to 924.02 on the high, just off the 50 day MVA (925.42) and then reversed, managing to hold the 18 day MVA (908.90) on the close. Holding that level is problematic, however, as the candlestick pattern is another 'tombstone' doji that stalled right at the 50 day MVA resistance and then fell below the late July high at 911.62. Stalling out right at the former highs after that spike up in late August; a failure here moves toward completing the 'mini' head and shoulders pattern spanning from early August to the present. The low volume move up may be ready to give up here.
Dow:
Stats: -21.44 points (-0.25%) to close at 8581.17
Volume: 852.388M (-25.68%)
Very similar action to the Nasdaq and S&P 500, rising to 8726.90 on the high (50 day MVA at 8759.42) and then falling to close just below the 18 day MVA (8596.87). The high tested the 50 day MVA and the late July and early August highs (8736; 8735) and reversed. After the lower and lower volume move up, this action potentially signals the move higher is stalling for now.
The Chart: http://www.investmenthouse.com/cd/$indu.html
THURSDAY
Some economic news to start the session (jobless claims, imports/exports) and then the Greenspan speech starting one half hour into trade will give some early morning color to the session. Many are viewing Thursday as the start of real trading since the Labor Day holiday. That does not mean there are no outside influences: the war talk with Iraq and the ongoing economic questions continue to exert influence.
The light volume rally has been hard to buy into on the way up, and with the intraday action Wednesday, it would appear that the indexes have run out of gas on the move. Barring some unforeseen buy signal, it looks as if the indexes are going to start a move lower from here: light volume recovery bounce, reversal at resistance even with no terror incident on the day. After rising on its own ahead of 9-11, the market turned and fell late with no external force. Could be a change of character.
We have been holding back a bit of late, letting the 9-11 observance and the associated undercurrents, waiting for the market to take direction. The action today indicates that the rise off the recent selling may be over. We are looking at more downside, and we have let some downside positions run up a bit but now they look ready to fall and we will also consider more positions on those as they break down.
Support and Resistance
Nasdaq: Closed at 1315.45
Resistance: The 18 day MVA (1318.22). The March/May downtrend line at 1348 (tapped on the high). The late July high (1354.48) and 1357.09, the October 1998 bear market low. The 50 day MVA (1359.27). 1418, the interim test after the September low. There is another downtrend line from the March and May highs at 1420. That is followed by price resistance at 1500.
Support: 1316, an early August interim high. The 10 day MVA (1310.86) and price resistance at 1300. 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 909.45
Resistance: The 18 day MVA (908.90). The top of the wedge at 911.64. The 50 day MVA (925.42). The September 2000/May 2001 downtrend line at 935. The July up trendline at 952 and price resistance at 950 are coincident. The next downtrend lines from March and April highs at 954. 965, the September 2001 closing low. Then 1000 is psychological resistance.
Support: The 10 day MVA (906.17) and price support at 900. The March downtrend line at 891. 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 (820). 800 is next. Then the July low at 775.68. 750 to 760 with an intraday touch to 730.
Dow: Closed at 8581.17
Resistance: The 18 day MVA (8596.87). The late July high that is the top of the ascending wedge at 8762.14 (8745 closing). The 50 day MVA (8759.42). The July uptrend line now at 8996. 9000 is key on up to 9050. A range of resistance from 9000 to 9500, but specifically 9250 and then 9500.
Support: The 10 day MVA (8557.71) is some support. Price resistance at 8500 and the March down trendline at 8490. 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 (8070). 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, Import prices, August (8:30)
Current Account Q2 (8:30): -$125.0B expected, -$112.5B prior.
Greenspan (10:00): Addresses House Budget Committee
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
JOSB: Several retail breakouts lately, and JOSB was looking good Tuesday and gave an early breakout. Given the session being 9-11 and prone to reversals there was some trepidation, but the early volume was good. Given the accumulation in the pattern and the storng move, however, we were willing to open some positions. The stock bolted higher and was near 21.10 with a 15 to 20 cent spread. No options so we were looking at stock. We slipped in a limit order just ahead of the ask and managed a fill below our limit price of 21.18; the speed of the electronic systems are very nice as opposed to the old style. JOSB was on a tear, that is why we put in the limit a bit ahead of the ask so we could catch some shares in a fast market. The stock continued to rally and moved on excellent volume.
End Part 1 of 2
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