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understanding the stock market, stock trader
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9/26/02 Technical Traders Report Update
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Technical Traders Report Subscribers:
MARKET ALERTS:
Targets hit alerts issued Thursday: None issued
Buy alerts issued: KDE; CENT
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:
- Relief bounce continues, volume does not.
- Economic news gives some room to exhale for the session.
- Indexes close at the 10 day MVA with Nasdaq turning over. All she wrote?
Dow, S&P 500, S&P 600, S&P 400 all fight off sellers and close near highs. Nasdaq does not.
The relief rally moved into day 2, but after leading the move off the bottom, the Nasdaq hit the 10 day MVA, traded over it, but then folded and closed lower. The Dow and SP500 both closed right at that level while the smaller cap indexes closed above this first resistance point in the relief bounce. The question is, will the move continue, or it is it ready for the scrap heap already?
There was no bad news to weigh on the market. Indeed, NOK reiterated 2003 projections. On top of that the economic news was better than feared. Jobless claims were lower while durable goods orders were not as low as expected. With that news not even Warren Buffet's less than sanguine comments on the market (still have to pay the piper more) could derail the momentum. In the end the overall market was up on the close but not the techs. Techs were reeling, giving back an 18 point gain to close flat. The big issue is whether the techs are now leading lower or did they simply prime the pump for a move up to the 18 day MVA by the Dow and S&P 500? At this point this is still just a relief rally in a continuing downtrend until is shows something else. The time for that won't come around until Monday at the earliest.
THE ECONOMY
Jobless claims fall but still over 400K that is considered the recession signpost.
New jobless claims fell to 406K, down from a revised 430K (from 424K prior). That was hailed as a positive since they were actually lower. Indeed, this week the revision was not so major as to wipe out any real reduction in the rate. Still, it was above 400K that is considered a sign of recession. It has now spent over a month above 400K after sliding lower for a couple of months. The 4-week average also is lodged over 400K (419K) and continuing jobless claims jumped to 3.68 million from 3.59 million prior. Lots of continuing claims meaning jobs are very hard to come by.
More layoffs as well.
Moreover, there will be more jobless claims coming as the corporate trimming continues. Aetna announced it was cutting 2750 jobs (17% of its workforce). The after the close SBC (a baby bell) announced it was laying off another 11,000 employees. That brings its total announced layoffs to 21,000. Secretary Treasury O'Neill said last months' employment report spoke to the strength of the economy. That will be shown to be the aberration it was with the next report as layoffs continue even as the economy 'improves.'
Durable goods orders fall -0.6% versus the -3.4% expected.
Once again durable goods surprised though not of the magnitude of July's 8.6% gain (revised down from 9.2%). The smaller than expected loss shows a continued glimmer of hope in the manufacturing sector. The ISM has been over 50 for a few months, so there is some activity. It is not, however, robust expansion as we have detailed over the past two weeks. You see, SBC is not only laying off workers, it is also reducing its 2003 cap ex spending to $3 billion less then 2002. Of course, 2002 was not near the high watermark for SBC's capital spending.
New home sales rise 1.7%.
996K units for August, ahead of the 980K expected and ahead of the 977K prior, BUT that was revised lower from 1.017M units. Better than expected, but not really a gain if you look at what was reported before. This method of reported gains and losses is like taking a test and getting a 'B.' Then they come back in after the fact and change the grading scale and give the same work an 'A.' Finding the moving target makes understanding the government numbers confusing. With the government, however, that seems to be the object.
THE MARKET
Not a bad day, not a great day. The indexes went separate ways, and that is not good for the market. The Nasdaq was the first to try and turn back up after, of course, it was the first one to plunge to new multiyear lows. It was due the first bounce and it showed it was ready on Tuesday. It hit the 10 day MVA and stalled Thursday; perhaps its move is over first. The Dow and S&P 500 are right at the 10 day MVA and closed on a strong note though on lighter volume. We have been looking for a move up to the 18 day MVA on this bounce; the Nasdaq's move and the after hours news from SBC and MO (not going to makes its numbers) may put the kibosh on any further upside move. These low volume rallies to the upside inside a continuing downtrend are finicky and prone to failure as the buyers just are not there to support steady gains for the entire market.
Now the real test comes next week to see if there is follow through buying to the short covering that started the rally. That is the critical, jump off point for any move in stocks, i.e., when the shorts finish covering will the long term buyers step in. As we have said, July lows or no, the market is in a downtrend, upside moves have been weak on the whole, and the economy is still in the tank. Not what one would say was the recipe for a bottom, but then again, bottoms come at the most unusual times, at least from the crowd's perspective (referring again to the bottom in 1974 when things looked very bleak). With the after hours news of layoffs the move will be tested early Friday. We were looking for a momentum move up to the 18 day MVA and then selling Friday afternoon. The market may avoid the Christmas rush and start that Friday morning.
Sentiment Indicators
VIX: 40.12; -2.29.
VXN: 59.09; +2.40. Heading in opposite direction from the VIX as the Nasdaq showed the weakness after starting the move higher.
Put/Call Ratio (CBOE): No data available.
Nasdaq
Ran up over the 10 day MVA but never made it to the 18 day. From there it rolled over and started to sell off. Volume was slightly lower, but that does not mean a lot here as volume each session is roughly equal.
Stats: -0.68 points (-0.06%) to close at 1221.61. Gave up a solid if not spectacular gain.
Volume: 1.667B (-1.66%). Lower though still above average volume on the reversal from the highs. Not dumping but volume is in a tight range.
Up Volume: 510M (-935M)
Down Volume: 1.139B (+922M).
A/D and Hi/Lo: Advancers led 1.23 to 1. At least the advancers hung on, but as with the final result, it was basically a flat session.
Previous Session: Advancers led 1.87 to 1
New Highs: 21 (-2)
New Lows: 168 (-34)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Opened right at the 10 day MVA (1231.55) and managed 1239.62 on the high, equidistant from the 10 and 18 day MVA. Typically in a downtrend the 18 day MVA is at least tapped at intraday before the index or stock starts to turn back down. When the 10 day MVA takes control in a downtrend, it is an especially severe one. In June and July it was the 18 day MVA that was pushing the Nasdaq back. In September 2001 it was the 10 day MVA and earlier in January to March 2001; in short, the worst downtrends use the 10 day MVA. Is that what is starting here? Cannot say at this point, but with a doji that closed below the 10 day MVA, it looks as if the Nasdaq is ready to start the trend lower once again.
S&P 500/NYSE
Rallied up to the 10 day MVA, fighting off the late profit takers to close just off the session high. Had momentum at the close to test the 18 day MVA on Friday. We will see if there is any stomach in the long investors Friday.
Stats: +15.29 points (+1.82%) to close at 854.95
NYSE Volume: 1.597B (-2.85%). Lower volume on a gain. The sad story of upside moves.
Up Volume: 1.144B (-167M)
Down Volume: 471M (+123M)
A/D and Hi/Lo: Advancers led 2.86 to 1. Another solid session as the mid and small-caps helped the breadth.
Previous Session: Advancers led 2.73 to 1
New Highs: 64 (+10)
New Lows: 56 (-111)
The Chart: http://www.investmenthouse.com/cd/$spx.html
It is still just a bounce at this point as the large caps moved up to the 10 day MVA (855.06) on low volume but could not take out that level on the close. It did turn a late selling attempt around, but volume backed off again as the S&P rallied higher for the second consecutive session. Still above average, but not as many buyers as sellers in the market. Now it could fall back a session or two and still follow through next week on the Wednesday turn around. At this stage and given the recent history, however, there is no reason to assume a bottom has formed and that a follow through is coming. Best to stick with what the trend is showing you. The momentum is solid but will be tested with the post-bell announcements. A slightly soft open is okay as they often lead to more upside; a gap lower and you can stick a fork in this move.
Dow:
Stats: +155.3 points (+1.98%) to close at 7997.12. 300 points in two sessions as the Dow led the large cap indexes in a percentage gain. And that was with GE and IBM fading on the index.
Volume: 1.597B (-2.85%)
Still just a bounce as the Dow stretched toward the 10 day MVA (8032.17) but on NYSE volume that trailed lower. It also failed to close over 8000, a level that was getting a lot of media attention Thursday. What is more important is how it handles the 10 day MVA, and if it clears that, how it handles the 18 day MVA (8180.65). If it can manage a move higher, we anticipate it will find its top on this move at that point. As SBC and MO are Dow components, the Dow will have its own source of pressure early in the session, and it will most likely start the session below its close.
The Chart: http://www.investmenthouse.com/cd/$indu.html
FRIDAY
Well, if the relief bounce continues we are going to caution regarding Friday afternoon ahead of another pre-war weekend. The market is still in a downtrend, and with lighter upside volume on the bounce, it is simply good caution to be ready for some pre-weekend selling, especially if the move continues higher.
After hours futures were off, but the S&P was above FV while the Nasdaq was well below FV. Bifurcated indexes in a weak market are a recipe for trouble. Still, nearer term we could see a softer open give way to another try higher toward the 18 day MVA. Could, if the economic news is again better than expectations. Final Q2 GDP is out before the open, and 15 minutes into the session Michigan sentiment revised is released. GDP could edge in a bit higher than expected, and so could sentiment. That could fuel an early rise as stated.
In sum, however, we are cautious about the longevity of the overall rally Friday whether it ends at the open or later in the day. We have been focusing on the strong upside moves; there were several on strong volume from solid patterns again. Those will tend to hold onto those moves as they held on during the selling and completed their patterns. Other than a total July-like meltdown we anticipate these stocks will continue their moves, consolidating with the market selling, and then moving again.
As with the indexes, there are many of our put plays, current and prospective, that have moved right up to resistance on lower volume in a recovery from the recent selling. As opposed to the upside plays that finished bullish patterns on the selling, these are stocks that broke down and have used this relief bounce to wander back up to resistance on low volume. The are trending lower, not breaking higher. When we see the relief bounce roll over either here at the 10 day MVA or higher toward the 18 day MVA, these are the plays we take to the downside while we let the upside plays either continue up (many have been doing that) or consolidate the recent moves, awaiting the next opportunity to add to the upside gains.
Support and Resistance
Nasdaq: Closed at 1221.61
Resistance: 1230 and 1250 are more price resistance points. The August down trendline at 1224. The 10 day MVA (1231.55). The 18 day MVA (1254.22). 1270 is still more price resistance from the September lows. The March/May downtrend line at 1299 along with price resistance at 1300. 1316, an early August interim high. The 50 day MVA (1314.46). The late July high (1354.48) and 1357.09, the October 1998 bear market low. There is another downtrend line from the March and May highs at 1376. 1418, the interim test after the September low. That is followed by price resistance at 1500.
Support: Price support from 1190 to 1200 (the July intraday low is 1192.42). 1177ish is some support. There is price support from 1080 to 1100. Then there is a big shelf of support at 1050 down to 1000.
S&P 500: Closed at 854.95
Resistance: 850 to 855 (the October 1997 and Q2 1998 lows) have not been cleared. The 10 day MVA (855.06). The March downtrend line at 869 and the 18 day MVA (869.13). 875 is price resistance of some significance. The 50 day MVA (900.86). July and August interim highs at 911.64. The September 2000/May 2001 downtrend line at 923. The downtrend lines from the March and April highs (934). Price resistance at 950. 965, the September 2001 closing low. Then 1000 is psychological resistance.
Support: The first bottom channel line in the March downtrend (830). The lowest channel line in the March downtrend channel (794) along with price support at that level. Then the July low at 775.68 and marks the culmination of the short head and shoulders pattern. 750 to 760 with an intraday touch to 730.
Dow: Closed at 7997.12
Resistance: The 10 day MVA (8032.17). The August lows (8043) and the September 2001 intraday low (8062). The 18 day MVA (8180.65). The September closing low at 8235.81. 8250 acted as resistance before after acting as support. The March down trendline at 8290. Some price resistance at 8500. The 50 day MVA (8505.58). The late July interim high at 8762.14 (8745 closing). A range of resistance from 9000 on up to 9050. Then 9250 and then 9500.
Support: The lowest bottom channel line of the March downtrend (7875). 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
9-23-02
Leading Economic Indicators, August (10:00): -0.2% actual, -0.1% expected, -0.1% prior (revised from -0.4%).
9-24-02
Consumer Confidence, September (10:00): 93.3 actual, 92.4 expected (prior 95.0 expected), 94.5 prior (revised from 93.5).
FOMC meeting results, 2:15: No change in rates, bias, worried about war.
9-25-02
Existing home sales, August (10:00): -1.7%; 5.28M actual, 5.35M expected, 5.33M prior.
9-26-02
Durable goods orders, August (8:30): -0.6% actual, -3.4% expected (changed from -1.8%), 8.6% prior (revised from 9.2%).
Initial jobless claims (8:30): 406K actual, 420K expected, 430K prior (revised from 424K).
New home sales (10:00), August: +1.7% to 996K units, 990K expected, 977K prior (revised from 1.017M).
FOMC minutes, 8-13 meeting (2:00): Slowing in the economy. Golly gee.
9-27-02
GDP Q2 final (8:30): 1.1% expected, 1.1% prior.
Michigan Sentiment revised (9:45): 86.0 expected, 86.2 prior.
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End Part 1 of 2
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understanding the stock market
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