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us stock market, stock trader
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11/26/02 Technical Traders Report Update
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Tuesday: None issued
Buy alerts issued: MSN
Trailing stops issued: None issued
Stop alerts issued: DVA
You can sign up for Technical Trader alerts at the following link:
http://www.investmenthouse.com/alertttr.htm
HOLIDAY SCHEDULE
Full report Tuesday. Market update Wednesday. Full weekend report.
SUMMARY:
- Solid economic news fails to impress the market.
- Indexes sell to near support on lighter but not light volume.
- GDP better than expected but solid consumer confidence viewed as a reason to sell.
- The selling set the market up for some buying, but it may sell a bit more first.
- Subscriber Questions
Market was ready to sell.
Futures were lower ahead of the BDP number that sent them spiking higher, but just for a few minutes. That told us that the market was under some pressure, but we still expected some buying attempts after early selling. That did happen and the market was on its way to a good morning run when the consumer confidence numbers came out. Very solid with very solid future expectations, but it was below the expectations for a higher than expected number. Enough expectations for you? Anyway, despite being solid and looking back on firm ground, it was not enough for the market. It was a reason to go ahead and lighten up on positions ahead of the holiday. The good news is that volume was a bit lighter and this may have gotten the sellers out of the way.
Speaking of volume, it was lighter but hardly light. It slid in just below the Monday levels but was far from being a weak volume day. It backed off in the afternoon session or it would have easily moved out ahead of the Monday volume and would have logged a distribution session. But, as we all know, if 'ifs' and 'buts' were candy and nuts, we would all be happy at Christmas. It avoided a distribution session and it simply looked as if there was a need for a reason to take some gain and the market got that with the Consumer Confidence number.
THE ECONOMY
GPD climbs to 4.0% on the back of consumption.
Consumers helped drive GDP higher with a 4.1% increase in spending versus the 1.8% Q2 rise. A nice rebound helped by auto sales. Business expenditures were revised to a -0.7%, wiping out that gain. That is a blow, but it did not completely reverse the positive news on business spending. Equipment and software purchases expanded for the second consecutive quarter, a signal of a definite improvement in the other side of spending though it has a long way to grow. Further, there were reports that there was actually an increase in tech hiring in November. That news helped the market, but it did not keep the futures propped up.
November consumer confidence jumps to 84.1, but misses 85 mark.
This is what hurt the market, or more accurately, gave it a reason to sell. Expectations had been hiked up to 85 or better given the improving economic conditions, rising stock market, etc. When it came in with a solid gain versus the pathetic 79.4 the prior month it was a disappointment, but it is hard to call this disappointing in the overall economic picture. While current conditions rose just 0.4 (77.6 from 77.2), the expectations 6 months down the road jumped 7.3 points. That is a huge jump in terms of this number, and it is a very positive reading, made even more so given that there had been 5 consecutive monthly declines ahead of the number.
Indeed, much was made of how the confidence numbers last month were at a 10-year low after suffering the largest single month drop in 20 years. That, as Paul Harvey would say, is just half the story, the half that the economy's detractors would like you to hear. Yes those are accurate statements, but 10 years ago in that recession sentiment numbers were down in the fifties and sixties at the lows. That is a HUGE difference from the lows of this recession, and that is firmly backed by the continued willingness of the consumer to spend all through the slowdown.
New home sales fall but beat expectations.
While existing home sales shot up in October, new homes dropped 4.5% to 1.01M annualized units, but that was above the 985K expected. It is interesting that the sales were better than expectations after home sales have been expected to carry the economy. Economists are not banking on homes pulling all the weight but are now coming round to thinking there is some light ahead (even more Tuesday were saying that retail sales at Christmas are going to be better after they saw the jump in consumer confidence) even without the housing sector hitting new highs. Seems they are coming round to this conclusion a good month after the market started pricing it in.
THE MARKET
The holiday cheer if any ran out early Tuesday morning as the futures were down form the open of the pre-market session and could not be coaxed back up to stay even with a better than expected GDP report. It was Tuesday, and what have we seen on Tuesday? It is the new day for valuation downgrades. They were out on many, many stocks and that did not help the tone. Just when the market was catching its footing and running up after the early selling (soft open, then rally scenario) the confidence numbers gave everyone that had a moment's thought of selling the reason to take some gain. The market never recovered. Volume was slightly lower but solid, and the A/D line was a bit sharper to the negative side than what we have been seeing.
The action had some of the boo birds out saying the rally was in real trouble because there was no follow through to last week's breakout. It broke out Thursday, rallied Friday and then again Monday before giving back some of the gain Tuesday. Of course Wednesday was a solid day as well leading up to the breakout. One day of selling following 4 straight up sessions. No, no follow through there. Give me a break. The market does not go straight up or straight down. Wednesday to Monday was a very nice rally. While we were looking for a drift up higher to resistance, the action was not a death blow. Indeed it could be the set up, the shakeout, before another move higher around the holiday.
Certainly that would be how things have happened historically, but even if the market doesn't rally Wednesday and Friday that does not mean the rally is doomed. What do we mean? Well in the big run from October 1999 to March 2000 Thanksgiving was not that great. There was a very serious jerk downward on high volume for two sessions. We distinctly remember one commentator saying that the rally was over right then and there. He was about 4 months and 40% off in that prediction.
Not just selling for the sake of selling as bonds were up and stocks were down on better economic news.
Moreover, there was something really suspicious ongoing Tuesday. Even with the strong economic news the bond market was up and running while the stock market was under pressure. With the solid economic news just the opposite should have occurred. What we think we were seeing Tuesday was some rebalancing of some big portfolios for the end of the month that comes on Saturday this year. Last night we talked about how the later Thanksgiving won't really impact consumer spending: they will spend before the event and there is the same number of days for consumers. With respect to month-end portfolio balancing, however, the weekend is important. Friday is a half day and there won't be much liquidity, and Wednesday could be the same as managers want to cut out early. That left Tuesday get some stocks sold for the gains they made and some bonds bought with those gains to make the portfolio look 'balanced' and profitable for potential customers ('please read the prospectus carefully before investing . . .'). Thus the somewhat incongruent reaction of the markets to the economic data. While we might see some more of the same action early Wednesday, we think that rebalancing/shuffling will be over with soon and then there may be a drift back up.
In short we don't see anything damaging done to the market Tuesday, just more of a top heavy need to sell; the holiday drift could not overcome the need to take some gain after four straight up sessions that bolted the indexes higher. A bit more downside move and the indexes will be ready to try another move up.
Sentiment Indicators
VIX: 28.74; +1.79
VXN: 47.99; +2.31
Put/Call Ratio (CBOE): 0.83; +0.24. One of the constants in the market the past three months is how the put/call ratio responds to selling. For the most part it has hung in the higher end of the range (0.7 and up), and after it has drifted back on some stock buying it tends to jump up sharply each time there is some selling. Tuesday was another example of this. Prices were roughed up a bit more than we would like to see, but it a first session of selling and hardly indicated that the rally was over. Nonetheless put activity jumped higher. While not all of that was speculation that the market was falling again, historically this shows the general anxiety in the market. From its action, we can see there is still quite a bit of anxiety and that is good.
Nasdaq
Under pressure from the start, the techs made one rally attempt of any salt, and that was pushed back on the consumer sentiment news a half hour into the session. Held above near support but was heading lower at the close. It was holding up better than the Dow, but that all ended in the afternoon push lower.
Stats: -37.47 points (-2.53%) to close at 1444.43
Volume: 1.931B (-1.27%). Volume was a tad lower than Monday but was still above average. It is worth noting that the selling volume Tuesday was the lowest volume of the past 5 sessions, the four preceding sessions being up sessions. This continues to show that there are net more buyers than sellers in the market.
Up Volume: 452M (-972M)
Down Volume: 1.445B (+1.016B)
A/D and Hi/Lo: Decliners led 1.58 to 1. Swapped out with the Monday positive A/D line. Neither were very strong compared to the prior sessions.
Previous Session: Advancers led 1.54 to 1
New Highs: 48 (-28)
New Lows: 31 (+1)
The Chart: http://www.investmenthouse.com/cd/$compq.html
A gap lower was reversed by the time the consumer confidence number hit. Just as quickly the recovery was over and the techs were under pressure the rest of the session. Through lunch and the early afternoon they were holding up well and looked ready for an afternoon bounce, having held well above near support. The start of the move was cut short, however, and the techs then took the lead to the downside and logged the worst percentage drop of the big indexes. It closed on the low but still above the August high at 1427 and the 10 day MVA. We suspect there will be an early push down to the August high and then the start of a recovery.
S&P 500/NYSE
That doji did in fact indicate the large caps were a bit winded as they sold down to close near the 10 day MVA.
Stats: -19.57 points (-2.1%) to close at 913.31
NYSE Volume: 1.514B (-2.01%). NYSE volume edged back on the selling, coming in below average. It too has shown much stronger upside volume than this selling session indicating that even the large caps have more buyers than sellers out there.
Up Volume: 296M (-643M)
Down Volume: 1.207B (+591M). Those in the market were selling NYSE stocks.
A/D and Hi/Lo: Decliners led 1.75 to 1. A bit stronger than the techs but still well below the 2+:1 we have seen on the upside sessions that started this rally and the last leg of the rally.
Previous Session: Advancers led 1.36 to 1
New Highs: 30 (-15)
New Lows: 21 (-3)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps could not hold above the November high (924), breaking lower to some support at the 10 day MVA (915) and just above the high from the June, July and August interim highs (911). The lower volume was and continues to be a good sign on the selling, but the index also finished very close to its session low (912.10). It did 'bounce' up off of the 911 support area, but you can hardly call that a sign of imminent recovery. All in all the doji that we saw Monday indicated slowing in the move and then there was a reason to take some gain when confidence was not up to increased expectations. It is still in good shape to hold after a bit further test lower Wednesday and then start a drift back up.
Dow:
The Dow was looking pretty good with its lateral move after the big breakout over the November highs, but that changed when it led the way lower early on, a MMM downgrade helping to get things rolling downside. It could not hold the November high (8800) and the July, August, and September highs (8762 to 8726), folding up shop and heading to the 10 day MVA (8663). The index can still test down to the 18 day MVA (8582) and the October high (8540) and be in good shape to continue the move as it would again make a higher low as it has been doing during this second stage of the rally.
Stats: -172.98 points (-1.95%) to close at 8676.42
Volume: 1.514B (-2.01%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
WEDNESDAY
The action Tuesday indicates that the market, while driven to a certain extent by current news, looks down the road and not admiringly at what it just passed. Confidence was solid and GDP was better than economists expected, but the market had already factored that in. After a good rally it was a bit top heavy. While we were looking for the holiday drift to kick in, not as many stayed home Tuesday as anticipated, and there were enough there to try and maintain profits heading into the weekend that marks the month's end. There was an excuse to sell (the confidence numbers), that started some selling, and that begat more selling. The market had made a good run and was a bit top heavy; it found the reason to take some gain and set up for the next move higher.
Indeed that is what we feel is going to happen. We do not believe the move is over even as many try to punch holes in it and try to call each inevitable selling session the beginning of the end. Not that we have any problem with that. As we said early last week, we view all of the market badmouthing as a good contrary indicator. We like to see analysts come out and say things are bad, that the market does not know what it is doing. We like it when the put/call ratio jumps back up on the first sign of any selling as speculators load up on risky, out of the money puts. That has kept the wall of worry in place and has kept plenty of fuel on the sidelines to be used in further market rallies.
Then there is the actual better news. NVLS gave its mid-quarter update after the close and said a bottom was probably in place (my what a powerful statement), that shipments would be slightly higher, that revenues would be in line and on the high end, and that earnings would be in line. Further NVLS stated it believed that the improved Q4 bookings guidance was due to increased demand as opposed to increased NVLS market share. Not bad news but still not the 'gee this is the turn' kind of information the market would love but never gets. Of course, the market never gets that news until it is abundantly apparent that the turn has already occurred. CEO's are just too cautious and view recovery in terms of things getting back to the way they used to be. Thus the market improves long before the CEO's come out and say 'yep, we are there.' That is no surprise as that is what the market has been doing the past two months.
The NVLS news was not bad and it helped the chip stocks after hours. NVLS closed down 1.77 but was down less than 80 after hours. The news was positive, but it did not yank the market back from the brink. Thus we are looking for some continued early weakness that could push the Dow to the 18 day MVA, the SP500 to 900ish before finding some footing and trying to stem the tide and start rising. The caveat has to be the load of economic data hitting pre-market and just after the open: jobless claims, income and spending, Michigan sentiment, durable goods orders, Chicago PMI (10:00). Still, as we saw today, those can influence the action, but they will not necessarily make the session. The market is generally trending higher based on an economic expansion that is getting started, and it will move up and down in that trend going about its own business as more and more data comes in. Thus it may seem as if it is ignoring the data as it appeared to do Tuesday, but it is still working within the trend, moving up and down as it gets oversold and then overbought and needs to digest the gains. Thus even with the NVLS commentary and some more good news Wednesday we could see it dip earlier and tap at support before starting the move back up.
Support and Resistance
Nasdaq: Closed at 1444.43
Resistance: Price resistance at 1500 and the 200 day MVA (now at 1498.52). 1574, the May low, is next.
Support: The August high at 1427 and the 10 day MVA at 1428. Then 1418, the interim test after the September 2001. The 18 day MVA at 1400. 1357.09, the October 1998 bear market low. July, August, and September interim highs at 1345. The 50 day MVA (1344).
S&P 500: Closed at 913.31
Resistance: Price resistance at 950. 965, the September 2001 closing low along with the August 2002 high. Then the 200 day MVA (985) and price resistance at 990.
Support: The November high at 925.66. 921 is some price support. The 10 day MVA is at 915 and possible support. July, August and September interim highs at 909 to 911 and backed up by the 18 day MVA (907). The top of the late October consolidation range at 899. The 50 day MVA (893). The September 2000/May 2001 downtrend line at 873. The March down trendline at 862. 850 to 855 (the October 1997 and Q2 1998 lows).
Dow: Closed at 8672.42
Resistance: The late July and early September interim high at 8726 to 8762.14 (8745 closing). The November high at 8800. A range of resistance from 9000 on up to 9050. The 200 day MVA (9194). 9500 from June and July lows.
Support: The 10 day MVA (8663). The 18 day MVA (8582) and then the October high at 8500. The exponential 50 day MVA (8436) and then 8250.
End Part 1 of 2
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