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us stock market, stock watch
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11/20/02 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: Several stocks were rallying to buy points but we decided to let them run given the start of the strong move (AVID; SYMC; ARTI)
Buy alerts issued: BER; POSS; VSEA
Trailing stops issued: STN
Stop alerts issued: INTL
You can sign up for Technical Trader alerts at the following link:
http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- Chip upgrade helps spark a rally (along with a good pullback to support).
- Housing sales topping off at high levels.
- Solid, not powerful, volume advance to resistance.
- HPQ sparks more enthusiasm after hours.
- Team Trades
Helping rescue what they helped cause.
Tuesday the market was pelted with downgrades and was unable to handle the onslaught. Stocks did not, however, go into freefall despite the valuation fears. Holding at support, the indexes were ready for something positive to move them. It came as early as Wednesday morning with Soundview increasing its target prices for some specific chip equipment makers. After the Nasdaq had dropped 4% the prior two sessions and was sitting on some support, the news set a modestly positive tone. Once the techs had a foothold, they resumed their leadership role. The Dow and SP500 used their positions right on top of support with doji's to follow the Nasdaq higher. The SP500 even cleared some near resistance on some rising volume. Not a great session, but a nice, solid up volume session.
THE ECONOMY
Housing starts fall, permits rise, mortgages leap higher.
Housing starts plunged 11.4%, the biggest drop since November 1994 and coming in a bit below expectations. Permits, however, moved up 1.7%, much better than expected. Now given the two, actual starts is the trump card because permits don't mean houses will be started. We have seen permits rise in the face of falling housing starts 2 of the past 3 months (now 3 of 4), some proof that you cannot count on permits as an exact measure. They are necessary to be sure, but a permit is the acorn; it has to start growing before it becomes that oak tree.
Mortgage applications exploded higher with a 21% increase for week ended 11-15. Refinances were the king, up 27% and making up two-thirds of the entire mortgage pie. Refinancing continues to provide some stimulus to the economy, but not as much as the Fed makes it out to be. Many are refinancing to shorter term mortgages (30 years to 15), paying a lower interest rate than on a 30 year but maybe coming out even or paying a little more monthly to do so. That cuts down the interest cost but it does not put money in the mortgagee's pocket right now. Theory usually sounds good, but reality is what matters.
You probably heard it: housing starts were down but . . . they were still at strong levels. That is very true. But it is a continuation of the data the past 4 to 6 months and it shows that the housing market has plateaued, finding it difficult to grow sales given the high level of sales the past two years. As with the consumer, the housing market cannot stay hot forever, and relying on it to do so is very reminiscent of that problem back in early 2000 when the numbers started to peak and reverse. Relying on the status quo was disastrous at that point. The Fed should have been cutting rates at that point as its rate hikes had started their effect, i.e., drying up investment and starting the economy down. It would have taken another 6 to 9 months minimum for the rate cuts to be felt, and that would have been a bit too late for the economy as it turns out. We said at the time that once that big supertanker of rate hikes started plowing too close to economy it would not be easy to slam the engine in reverse and keep it from slamming into the dock. The Fed waited until it had hit, caught fire, and burned most of the wharf before it cut rates. The point: saying things are okay simply because another record month of home starts is in the book is na ve. It is the trend that matters, and the trend is peaking. The economy will have to find its lifeblood from new veins now, and business is the logical choice. It needs some goosing with investment incentives to really get it moving.
Radio ads rise.
There are several economic barometers that are often overlooked. One that we reported on as the economy started to slide was containerboard shipments. That is what goods are packed in. It was falling fast, indicating that not as many goods were being shipped. Another is transportation rates, both cargo carried and prices. We see that Federal Express is raising its rates after the first of the year, following the UPS lead. That is encouraging that they feel good enough to raise those rates and feel it will not cut into business.
Radio and print advertising has been overlooked in favor of television (and that is not what it was). In September the radio ad council reported a 17% increase in radio ad spending, well above expectations. On top of that Q4 is looking solid and expected to come in well in excess of the 7% increase forecast. That is another positive kernel regarding business spending. Venturing out to advertise your product means that there is the belief that there will be a payoff for doing so, i.e., the old spend a dollar to make $1.50 idea. Business is feeling a bit more confident than the CEO's are letting on to be.
THE MARKET
Tuesday we said during the session it was a time to be patient. We did not think our patience would be rewarded so soon, but the market had pulled back for two sessions as it held together reasonably well. That was apparently enough to get buyers back into the mood. A morning rally just would not quit, and you could see it happening all session: more and more money was being dragged in as investors feared missing another run.
That is the process we have been talking about: it is good that there is a lot of pessimism and uncertainty about the rally and whether the market is in just a bear market bounce or in a new bull run. The uncertainty and indecision keeps things under control. There is no huge blast off that sucks all of the money into the market. It is a steady trend higher though it is punctuated with events as we saw Monday and Tuesday. Those are nerve wracking when you are playing the upside given the market history the past 31 months, but as we have been saying, we have not seen the market breakdown and thus gritted it up and stuck with the upside trend. That anxious feeling you get when you initiate a play and then later see it test back is what millions of investors are feeling, some are not even in the market anymore and they still feel it. That keeps money on the sidelines, but the trend also keeps dragging money in dollar by dollar. That anxiety thus feeds the rally but it also does not dump all the food into the feedbag at once so that the market will founder itself. It may require an extra bottle or two of Pepto Bismal around the house or office, but that is not a bad tradeoff.
Volume rallied on the Nasdaq and NYSE, though it was not a massive blowout session. The large caps scrapped back and closed over the July, August, and September interim highs, a good first step to get over the early November and then August high. Breadth was good as well. Hard to complain about the action. Now the Nasdaq has made that higher low again and it needs to smash through that August high.
Sentiment Indicators
VIX: 28.66; -2.7
VXN: 44.82; -0.7
Put/Call Ratio (CBOE): 0.63; -0.18
Nasdaq
Rallied all session, fighting off a last hour urge to sell and closing at session highs. Right at key resistance with volume rising.
Stats: +44.84 points (+3.26%) to close at 1419.35
Volume: 1.774B (+9.33%). Back above average on the buying Wednesday as the Nasdaq found some buyers after two days of selling.
Up Volume: 1.533B (+1.098B)
Down Volume: 210M (-960M). Buyers way out in front, getting back to the characteristic we saw in the earlier stages of the rally.
A/D and Hi/Lo: Advancers led 2.18 to 1. Upside breadth is once again easily outpacing downside breadth.
Previous Session: Decliners led 1.36 to 1
New Highs: 51 (+12)
New Lows: 46 (+10)
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq surged all session as the semiconductors cleared the way for the rest of the market to follow. It cleared some interim resistance at 1418, but the key is the August high at 1426.76. We really like the fact that Nasdaq made that higher low above the 18 day MVA (1364). Those higher lows with a constant top builds pressure: the index and its stocks work higher on rising volume, squeezed from the bottom by rising prices and squeezed from the top by the resistance at 1427. That can lead to strong breakouts as the index squirts higher like a watermelon seed from between your fingers. The Hewlett Packard news may be what it needs to make the break.
S&P 500/NYSE
After a test of the 18 day MVA, the large caps broke over some interim highs on some decent volume. A good start.
Stats: +17.4 points (+1.94%) to close at 914.15
NYSE Volume: 1.495B (+13.1%). Volume moved up but was barely average. Good but not great.
Up Volume: 1.128B (+612M)
Down Volume: 374M (-425M)
A/D and Hi/Lo: Advancers led 2.27 to 1. Very solid breadth advance as the NYSE also resumes its pattern of strong upside breadth and modest downside breadth.
Previous Session: Decliners led 1.27 to 1
New Highs: 25 (+3)
New Lows: 41 (+13)
The Chart: http://www.investmenthouse.com/cd/$spx.html
A quick test of the 18 day MVA on the low (895) produced a solid bounce as the Tuesday doji was a prelude to buying activity. Volume moved up to roughly average levels as the large caps were able to move through near resistance at 911. As with Nasdaq it had to recover late to regain that break, but the buyers did come back. Now it still has to move over the early November high at 925.66 on this move to put it to the next level so to speak where it can rally up to the August high (965) and then take another rest at that point. As with Nasdaq and the August high, the break over the November high is key for the near term.
Dow:
The Dow joined the action, moving up off the 18 day MVA on a good surge in volume though still average. Some big names such as GE helped out.
Stats: +148.23 points (+1.75%) to close at 8623.01
Volume: 1.495B (+13.1%)
The Dow had help from some big names as IBM, INTC, MSFT and even GE rallied on some stronger volume. That helped the Dow move up off the 18 day MVA (8440) as it too made a higher low and started back toward the November high that coincides with the interim July, August and September highs (8745 to 8800). That is the key range for the Dow to take out on this move. HPQ and INTC were performing well after hours and could help spark that move.
The Chart: http://www.investmenthouse.com/cd/$indu.html
THURSDAY
Stocks resumed more bullish action Wednesday, rising off support on stronger volume and overcoming some so-so news on the housing front. They also managed to shake off a late selling attempt and close back at the session highs. Solid action though we would have preferred stronger volume on the move.
Though it is not leaping ahead powerfully, the market continues to show bullish undertones that have thus far beat back the sell side. There is still a big test ahead for Nasdaq, and unless there is a nasty reversal ahead that has done a pretty good job of hiding itself we feel the recent action suggests a good breakout over that key resistance. We were in today taking advantage of good moves as they occurred and we were holding off on taking gains on several positions that hit the target but were running well. Until they show signs of losing some strength on the move (e.g., doji's after several up sessions, intraday reversals and closing near the session low) we are content to let them run as long as we have time on the option plays.
What we will be looking for tomorrow keys mostly on the Nasdaq. If initial jobless claims come in solidly below 400K once again and the Leading Economic Indicators show improvement again (10ET), that could be a further catalyst. For Nasdaq we will watch for a breakout over that August high at 1427. If it makes the move early, and it may just do that with the HPQ news after hours running stocks even higher, the key will be if it can hold the move through the close and show even better volume on that move. If the market is really in a bullish posture it should make the break on a solid jump in volume. Given the pattern the Nasdaq is showing (the higher lows and flat top, i.e., a small ascending wedge) we would expect strong volume on the breakout. If the Nasdaq cannot make the break or if it reverses the move and closes below resistance on more volume that is a poor technical sign and will be quite negative for Nasdaq and the market. We do not anticipate that give what we are seeing, but as always you have to be a skeptic.
So what do we do on new plays? Well, there are still stocks that are set up to move up well even after the Wednesday rally, and we will enter them if they are showing the right price moves and putting in some good volume. Nasdaq breaking over that August high should beget more buying if the move is truly bullish. Why? As indexes take out important resistance they inspire some short covering and more buying. If the move holds through the close that is a strong signal that a new level has been achieved, a new character is showing itself. That is why a breakout by Nasdaq over the August high is key.
Support and Resistance
Nasdaq: Closed at 1419.35
Resistance: 1418, the interim test after the September 2001 low has been cleared, but barely. The August high at 1427 is next and is key. Then some price resistance at 1500 and the 200 day MVA (1506)
Support: The 10 day MVA (1384) is possible support. The 18 day MVA at 1364. 1357.09, the October 1998 bear market low. July, August, and September interim highs at 1345. The 50 day MVA (1323). 1250 from some prior price lows. 1200 (August closing low) to the July intraday low at 1192.42. 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 914.15
Resistance: Some resistance at 921 up to the November high at 925.66. Price resistance at 950. 965, the September 2001 closing low along with the August 2002 high. Then price resistance at 990.
Support: July, August and September interim highs at 909 to 911. The top of the late October consolidation range at 899. The 10 and 18 day MVA (901; 895). The 50 day MVA (887). The September 2000/May 2001 downtrend line at 881. The March down trendline at 869. 850 to 855 (the October 1997 and Q2 1998 lows). Prior closing lows and highs at 800 from July and October. The July intraday low at 775.68. 750 to 760 with an intraday touch to 730.
Dow: Closed at 8623.01
Resistance: The late July and early September interim high at 8726 to 8762.14 (8745 closing) and the November high at 8800. A range of resistance from 9000 on up to 9050. The 200 day MVA (9212). 9500 from June and July lows.
Support: 8500 from October high and the 10 day MVA (8515). The 18 day MVA (8468). The exponential 50 day MVA (8374) and then 8250. The simple 50 day MVA (8174). 8000 (August low at 8043; September 2001 intraday low at 8062).
Economic Calendar
11-19-02
CPI, October (8:30): 0.3% actual, 0.3% expected, 0.2% prior.
Core CPI: 0.2% actual, 0.2% expected, 0.1% prior.
Trade balance, September (8:30): -$37.0B actual, -$37.3B expected, -$38.50B prior.
11-20-02
Housing starts, October (8:30): -11.4%; 1.603M actual, 1.710M expected, 1.810M prior (revised from 1.843M).
Building permits, October (8:30): +1.7%; 1.763M actual, 1.698M expected, 1.733M prior.
11-21-02
Initial jobless claims (8:30): 394K expected, 388K prior.
Leading Economic Indicators, October (10:00): -0.1% expected, -0.2% prior.
Philly Fed, November (12:00): -3.0 expected, -13.1 prior.
Treasury budget, October (2:00): -$51.3B expected, -$7.7B prior.
TEAM TRADES
POSS: We really like the consolidation over the 200 day MVA, and POSS did not keep us waiting long, exploding off that level on a big volume surge. It started the session and was not looking back. It hit the buy at 15.01 and we did not wait around for it. We issued the alert and moved in, looking for stock in an IRA. A good buy point at 15 if we wanted to sell calls on it later. The fill was quick and POSS rallied to 15.40 before backing off to 15 once again and then rallied to the close and a close at the high. A nice, solid volume breakout.
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End Part 1 of 3
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