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online trading, money investment
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12/04/02 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: None issued
Buy alerts issued: QCOM; MSFT
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
SUMMARY:
- Market continues the pullback, aided by valuation downgrades.
- Economic news is very solid but fails to move the market for now.
- Indexes hold the 18 day MVA, showing doji's, but it may take some lateral consolidation first.
The pullback continues.
As we expected, even solid economic numbers were not able to provide any punch for the market as it had already priced in last week's good news. It was already under pressure to consolidate the gains, and thus was open to attack. That came primarily in the form of valuation downgrades we had been expecting to come this week. This time they came on Wednesday with Morgan Stanley basically downgrading technology on a 'too far, too fast' theory. Those inclined to sell were given more reason to do so. In addition, less than rosy reports from HPQ along with warnings from DIS (one movie torpedoing Q4 - - where is Monsters, Inc. 2?) and FD (retailer November sales are down 7.4%, one of the few not participating in the retail sales wave) set the stage for further softness.
The market did not tank, however, holding support, rallying to the green for DJ30 and SP500 before some late selling pushed them back down. They still held support on some mild distribution, but we note once again that the NSYE A/D line was positive and Nasdaq A/D was no downside rout. Many stocks held the 18 day MVA along with the indexes, a very good sign of the overall positive nature of the pullback. The higher volume is a red flag, but we anticipate the indexes will calm down and move more or less laterally and up and down in a range through the week until the employment report. Then next week they will be in better position to provide a resumption of the move.
THE ECONOMY
Productivity jumps 5.4%, largest quarterly gain since 1973.
There is no question that the economic downturn combined with the massive technology investment in the late 1990's is helping businesses produce more for less. Companies have cut away all of the fat and continue to increase utilization of their tech systems. That keeps them hanging on during the business slowdown, but it makes hiring difficult to pass the board until business really starts to pick up.
ISM Services screams higher to 57.4.
Services are the biggest part of the U.S. business economy, and the service market continues to improve dramatically. Expectations were for a 54.0 reading, a slight gain. Instead it was a blowout. New orders shot up to 58 from 50.9 in October. As you know, new orders are key because they speak to the future. Higher orders mean the next report should be good as well.
October factory orders +1.5%.
Expectations were for +1.7% so not as good but a nice increase from September's -2.4%. This was the first increase since July, right before the point we became very concerned about the economic future before the numbers started to improve in late September, early October.
What is this about tax incentives to consumers?
What do these numbers show? Overall the economy continues to improve. It may not be robust, but it is on a shaky bridge to recovery. Major components are still hurting, however. Services are picking up, but manufacturing is still in a recession. The business spending is improving, but it is not great. It needs help.
So what are they talking about in Washington? Some good stuff, but mostly ignoring what would really help the economy (capital gains elimination, investment tax credits, marginal tax rate reduction across the board) and are looking at more consumer incentives. Consumer? The consumer has been buying for months and months and years and years. It did not keep the economy out of recession even with record consumption (that Greenspan was worried as being too much) and it has not pulled it out. There has to be business investment to make the recovery complete and in time for the millions that lost their retirements in the collapse the Fed helped engineer. The consumer is spending just fine; businesses need to be coaxed to hire, invest in new equipment, etc. There are a lot of incentives that can be floated out to increase hiring and investment.
We need to get on the phone to our senators and representatives and tell them to do what is right to get the economy moving and stop worrying about the deficit and all of the rhetorical BS they spout to push the party lines. We have a deficit because we have a weak economy. Stimulate the economy and you increase taxable income and that increases revenues. Voila! No more deficits (of course Congress has to cut its spending, something it has not offered to do even as it grouses about giving U.S. taxpayers back some more of their money so they cannot spend it on pet projects). Extending unemployment benefits and a $300 rebate to workers does not stimulate businesses to invest in the U.S. That is what is missing from the economy and needs to be addressed. The economy is not as great as everyone in D.C. seems to think. It is getting better but this was a historic slowdown; it needs historic measures to get up and running. Delays in doing that do no justice to those who lost their retirements because of foolish government decisions. The government needs to act now to fix the mess it made.
THE MARKET
The action was to the downside but it was positive overall in that the indexes tested below the 18 day MVA and then rallied back to close on those support levels. Many stocks mirrored that action. Now each index finished negative and the higher volume associated with that is technically distribution, i.e., more sellers in the market. It was still below the prior upside sessions, however. Moreover, the higher volume on the test of the 18 day MVA can be a positive as it shows that buyers came in to buy stocks at that point. Indeed, the action on the indexes intraday reflects that idea: buyers came back in on the undercut of the 18 day MVA to buy up positions. It did not hold the gains, but it was a signal that there is still underlying buying ongoing.
That does not mean the switch just went from sell to buy. As seen in late October, consolidating strong moves up can take some time. It took a couple of weeks there with alternate up and down days before finally making the breakout higher. A move laterally through the end of the week and then the start of another move next week would build a good foundation for that next move up.
You may have heard some talk today about the Nasdaq breaking its 8-week uptrend off of the October low and that causing sell programs to trigger. That can get you all worked up: oh my gosh, a broken trendline. Well, when you go back and look at the move up, you realize that the Nasdaq broke up trendlines all the way up. It raced off the low and then started to move sideways in the second half of October. Broken trendline. Do you recall the negative sentiment at that point? The rally had stalled, etc. Then it started up again. It rallied up into early November then fell sharply for three sessions. The second day of selling broke that trendline. The point? It is a fact of the market that the early, short trendlines will be broken as the market moves up, consolidates, moves up, consolidates. It cannot sustain the explosive move off of the low forever. If it kept up this pace the Nasdaq would be back at 5000 in 14 months. Don't let those kind of statements unduly influence you. It is normal for the market to move up and then consolidate, fanning the trendlines out as it moves higher. Keeping an eye on volume and leading stocks at this stage is how you stay a step ahead. For now they are holding up for the most part, similar to what they did in late October.
Sentiment Indicators
VIX: 32.14; +0.38
VXN: 53.55; +1.56
Put/Call Ratio (CBOE): 0.89; 0.00. Still holding up at high levels, a continuing indication that the anxiety level remains strong.
Nasdaq
A tight doji on the 18 day MVA is a good signal but not a green light that it is going straight back up from here.
Stats: -18.61 points (-1.28%) to close at 1430.35
Volume: 1.889B (+14.34%). Volume jumped significantly, but a lot of it was on the recovery in the afternoon and it occurred as the index showed a doji on the 18 day MVA support. Rising volume in those instances is not a bad thing. Still, higher volume on selling is something to keep an eye on; clearly the negative tech news was causing some selling given how the tech sector lagged all session. One day is no disaster, however.
Up Volume: 277M (+8M)
Down Volume: 1.52B (+145M).
A/D and Hi/Lo: Decliners led 1.45 to 1. Not bad at all; much improved over Tuesday.
Previous Session: Decliners led 2.11 to 1
New Highs: 51 (-6)
New Lows: 27 (+3)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Another gap lower, down to the 18 day MVA (1427). From there it traded lower and higher, but closed back at the 18 day. That is a tight doji on rising volume on top of support. That is often indicative of a move higher coming, and it was worth a few positions on stocks that had held the 18 day MVA as well. It does not mean it is guns blazing to the upside. We were just using the pullback and the hold at support to start building some positions.
S&P 500/NYSE
Very similar action to Nasdaq though volume did not jump as significantly.
Stats: -3.17 points (-0.34%) to close at 917.57
NYSE Volume: 1.504B (+4.68%). Up but still below average and even lower than the reversal volume on Monday.
Up Volume: 545M (+228M)
Down Volume: 966M (-158M). Not too bad.
A/D and Hi/Lo: Decliners led 1.08 to 1. Decliners nudged ahead of advancers in the last few minutes. Even with that it was more of a standoff.
Previous Session: Decliners led 1.6 to 1
New Highs: 24 (-11)
New Lows: 18 (+3)
The Chart: http://www.investmenthouse.com/cd/$spx.html
A very tight doji that tested the July, August, and September interim highs on the low (909.51) and then snapped back to close just over the 18 day MVA (916). On the high in the early afternoon it found resistance at 925, the early November high. Overall the index is in very good shape here, sitting on support and showing indications it is ready to move up. NYSE stocks have been very resilient in this pullback; as we said Tuesday, the smaller issues could take part in the move higher this time around.
DJ30:
The Dow showed its own doji, trading below the 18 day MVA (8685) on the low and then moving up to close over that support. It sits just below the early November high (8800) and is in the middle of the July, August and September interim highs (8726 to 8762). A bit lower than we would want, but it is in a good position to move higher. We note that the volume of the Dow stocks alone was up sharply from Tuesday when the index sold harder price-wise. That indicates that as the Dow sold to test the 18 day MVA, buyers started coming back into these stocks.
Stats: -5.08 points (-0.06%) to close at 8737.85
Volume: 1.504B (+4.68%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
THURSDAY
Jobless claims are out before the open, but we might not get much movement based on economic numbers until the Friday employment report that gets all the attention for being a lagging indicator. Then there is the Iraq deadline this weekend that may keep some from getting into and then holding positions over the weekend. On the upside, IBM said it would fully fund its pension by the end of this year and that doing so would not have any impact on its 2003 EPS (earnings per share). IBM was up solidly after hours.
Given the continued good economic news, IBM, and the doji at the 18 day MVA, you could conclude the market is ready to move right up. It may indeed move up Thursday; it is poised to do that. As we saw in the October consolidation, however, there can be a series of sessions that alternate up and down as the sellers are worked out as the rhetoric about the end of the rally ratchets higher.
That is why we were forcing ourselves to take it easy Wednesday, not too eager to sell plays early that were dancing around stop levels on the valuation downgrades. Selling on that kind of news often gets you a worse out (if you do indeed end up closing it out) than if you be patient. That is also why we were looking at some positions late in the session, particularly those stocks that had moved down to the 18 day MVA and showed a doji at that level on some rising volume (e.g., QCOM, MSFT, ISSX). We are not loading the boat with new positions, but doing what we did in late October and on the early November pullback, i.e., started building positions to take advantage of the pullback and prepare for the move back up. As we said before, you don't want to get too eager on the first signs that support is holding; start building slowly and average up into positions as things improve. If they don't, then you are not totally exposed. That is what we are going to continue to do Thursday.
Support and Resistance
Nasdaq: Closed at 1430.35
Resistance: The 10 day MVA at 1448 may be some resistance. Price resistance at 1500 and the 200 day MVA (1490). 1574, the May low, is next.
Support: The August high at 1427. The 18 day MVA at 1427. Then 1418, the interim test after the September 2001. The 50 day MVA (1366). 1357.09, the October 1998 bear market low. July, August, and September interim highs at 1345.
S&P 500: Closed at 917.58
Resistance: 921 is some price resistance. The November high at 925.66. Price resistance at 950. 965, the September 2001 closing low along with the August 2002 high. Then the 200 day MVA (980.55) and price resistance at 990.
Support: The 18 day MVA (915.75). July, August and September interim highs at 909 to 911. The top of the late October consolidation range at 899. The 50 day MVA (899). The September 2000/May 2001 downtrend line at 866. The March down trendline at 854. 850 to 855 (the October 1997 and Q2 1998 lows).
Dow: Closed at 8737.85
Resistance: The 10 day MVA (8757) is possible resistance. Top of the July, August, & September interim highs at 8762. The early November high at 8800. A range of resistance from 9000 on up to 9050. The 200 day MVA (9166). 9500 from June and July lows.
Support: The late July and early September interim high at 8726 to 8762.14 (8745 closing). The 18 day MVA (8685) and then the October high at 8500. The exponential 50 day MVA (8507) and then 8250.
Economic Calendar
12-02-02
Auto sales, November: 5.5M expected, 5.2M prior.
ISM index, November (10:00): 49.2 actual, 51% expected (up from 49.5), 48.5 prior.
Construction spending, October (10:00): +0.3% actual, 0.0% expected (up from -0.2%, +0.6% prior.
12-04-02
Productivity (revised), Q3 (8:30): 5.1% actual, 4.5% expected, 4.0% prior.
ISM Services, November (10:00): 57.4 actual, 54 expected, 53.1 prior.
Factory orders, October (10:00): 1.5% actual, 1.7% expected (revised up from 0.9%), -2.4% prior (revised from -2.3%).
12-05-02
Initial jobless claims (8:30): 374K expected, 364K prior.
12-06-02
Unemployment rate, November (8:30): 5.8% expected, 5.7% prior.
Non-farm payrolls, November (8:30): 35K expected (revised up from 13K), -5K prior.
Workweek: 34.2 expected, 34.1 prior.
Hourly earnings: 0.3% expected, 0.2% prior.
Consumer credit, October (2:00): $7.1B expected, $9.9B prior.
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End part 1 of 2
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