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12/18/02 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: None issued
Buy alerts issued: None issued
Trailing stops issued: None issued
Stop alerts issued: NBIX (took some $ off table); FRGO
You can sign up for Technical Trader alerts at the following link:
http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- Market gets a Micron headache. Will an Oracle help?
- Indexes dragged to recent trading range lows as SOX thuds lower.
- Some positives on the close but the current attitude of concern has not changed.
Chips off the table as Micron leads pack of bad news.
MU was reporting its much less than stellar earnings Tuesday night, and that paved the way for a swath of earnings confessions from a wide range of stocks. BBI said rentals were down due to DVD purchases. FDX warned things were slower and computer game maker ACTI did the same. With the whack from the Micron news the brace of warnings that followed thoroughly soaked the market with cold water. The indexes opened down, sold further, sold a bit more, and then meekly tried to rally off the lows late in the session. It was a down trend all session and volume rose significantly as it did. There were some institutions getting rid of stocks in the wake of the weak earnings and warnings of weak earnings to come.
Bush keeps up the war talk.
It does not help that the Bush administration at least twice a week brings up something regarding Iraq that makes it seem that war is simply inevitable. Wednesday it was the statement that Iraq was withholding information about its weapons in the 12K page ramblings it turned over to the UN. This is just the continuation of the push toward war with Iraq. Instead of just shutting up with public statements and letting the process work with some behind the scenes prodding the administration wants for some reason to keep it on the front page. Maybe that is the popularity poll issue again: if the economy is not doing as good as you want, keep them focused on something else.
Maybe there is some master plan that we are too myopic to see, but we can see the results of the weekly drum beating. First, oil prices topped $30 Wednesday after a month-long climb. Why would oil be climbing when the manufacturing sectors of industrial countries are still effectively in recession (depression?)? It is not due to demand; weak economies don't use as much oil. No, it is the geopolitical tension of what could happen if Iraq is attacked. No Iraq oil would be produced during the war, and then Saddam may torch his fields a la Kuwait if he is forced to take the magic carpet ride out of Baghdad.
That uncertainty is driving prices higher, and that puts pressure on both manufacturers and consumers. Every dollar hike in oil is akin to a 10 cent per gallon tax on gasoline or so it is said. That is a direct impact on the only part of the economy that is working, i.e., the consumer. Then there is the lack of investment simply because war is out there and represents a major uncertainty. War speculation is driving up energy prices and keeping companies and people from investing in the U.S. (something the falling dollar shows quite readily). If the plan is to get the economy going the Bush administration needs to be talking up the improving economic numbers, the need for additional stimulus to help it continue to improve at a faster rate to help those decimated by the recession and market collapse (a very worthy goal that is not ever mentioned by Congress), and let the world know that it has full confidence in the UN's ability to review the Iraq disclosure in light of all evidence. That might not spark a leap in confidence, but it would be much better than the continual comments about Iraq not living up to its obligations and then leaving the world to speculate what the hell the administration has and what its plan is.
THE MARKET
The market certainly does not like the approach. It was weak before MU again missed by a huge margin. As an aside, this is a continuing pattern for MU. It missed last time by more than expected. Do you remember back in late 2001 when MU said it thought it saw the bottom? Must have been a ledge on the way down. Anyway, the global uncertainty was hurting the market before, and MU gave it a concrete reason to sell as fears became harsh reality. MU is not a leader, but tech stocks in general find it hard to move without the chips being stable.
There was a much more selling than in the recent two weeks as volume jumped significantly as stocks sold off. That is distribution, i.e., institutional selling, and enough of those can tank a market as the big money unloads shares. With big money moving out stocks have little to hold them up. Never a good sign, particularly after a lateral move on low volume that is trying to consolidate at support; it can be the first indication of an imminent breakdown. Can be. After three weeks of low volume it took a major miss from MCD and MU to get the volume higher and it was still not above average. That rattled some cages, but it was not a clear signal that the selling light was on.
There were a few positives. Many leadership stocks barely batted an eye at the semiconductor and large cap woes. Leaders such as SYMC, BSX, AVID, ALN, NXTL, VZ, AMZN, EBAY, etc. ho-hummed the MU news and simply took a day off. Leaders are still continuing to lead despite the continued struggle and labor in larger cap stocks. Overall that is the biggest plus in the market; there have been continued breakouts from smaller stocks even as the big indexes have edged lower. Second, specific to Wednesday, there was a pretty sizeable buy on close program that was set to buy large baskets of stocks at the close. That prompted some of that late though weak upside bounce when investors saw those orders sitting out there.
Overall, the big indexes held roughly at their recent trading range lows. From a price perspective, given the MU news and other warnings, not a bad result. Volume jumped, and though still below average it was a day where some larger money was dumping shares. Most of that dumping was in the large names that had rallied on the move off the lows along with the other stocks that are currently leaders and breaking out. Unfortunately for the indexes, those stocks being dumped are the ones that influence the overall index performance. What has to happen here is that the ORCL news and buy on close programs seen at the close start to pick up these stocks again for a run up to the top of the range. If not and war tensions remain high, a breakdown from this range would be next.
Sentiment Indicators
VIX: 31.75; +1.59
VXN: 49.64; +1.5
Put/Call Ratio (CBOE): 0.86; +0.1
Nasdaq
Tapped the 1998 bear market low and moved up to close at the simple 50 day MVA. Has not broken down, but there was dumping ongoing in some of the chips.
Stats: -30.54 points (-2.19%) to close at 1361.51
Volume: 1.532B (+14.46%). A jump in volume was still below average but the highest in three weeks. This indicates there was some big money getting rid of stocks. It was, however, somewhat focused in the big names.
Up Volume: 214M (-289M)
Down Volume: 1.307B (+485M)
A/D and Hi/Lo: Decliners led 2.36 to 1. Again the A/D action has turned poorer, with downside breadth on down days really outpacing upside breadth on up sessions.
Previous Session: Decliners led 1.43 to 1
New Highs: 45 (-24)
New Lows: 67 (+25)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Under pressure all session due to the chip pressure, Nasdaq tapped 1355 on the low, just under the 1998 October intraday low at 1357. It managed to 'recover' to close at the simple 50 day MVA (1361). That move keeps it roughly in the recent range after hitting the high in early December, but that is not a glowing endorsement. It is still struggling with that toppy head and shoulders pattern and with Wednesdays action it looks hardly ready to make a run at 1427 to break up the pattern.
S&P 500/NYSE
Large cap stocks were beat right back down to the bottom of the recent range where they remain perched on the edge.
Stats: -11.87 points (-1.31%) to close at 891.12
NYSE Volume: 1.389B (+10.55%). Volume was below average still but it did climb on the NYSE making for the heaviest distribution in three weeks after a couple of very low volume marginally distributive sessions. Again, it took bad news to jump up volume, but it was still below average.
Up Volume: 290M (-79M)
Down Volume: 1.087B (+214M)
A/D and Hi/Lo: Decliners led 1.94 to 1. Decliners continue to increase their leverage, mitigated somewhat by the smaller issues.
Previous Session: Decliners led 1.54 to 1
New Highs: 28 (-12)
New Lows: 54 (+24)
The Chart: http://www.investmenthouse.com/cd/$spx.html
MCD then MU reported surprisingly bad earnings. All of that bad news and all that happened was that the index sold down to the bottom of the recent trading range that is potentially the right shoulder to the head and shoulders pattern. It is stretching out as it tries to hold onto support in the middle of the late October consolidation range (875 to 900) and the recent consolidation bottom (888). It is not a pretty picture but again, even with the MCD and MU news it did not break the index down. Indeed, even if it breaks the recent lows of the past two weeks it can fall to 875 before it finishes the pattern. A breakdown to a much more serious fall would be from there.
DJ30:
The Dow chart mirrors the other large indexes, fighting to hold onto the recent lows after the early December high as it too tries to avoid completing the head and shoulders pattern. The recent range low is at 8422 (not counting the Wednesday low). It is already below the simple 50 day MVA (8519) and is in the October consolidation range that ran from 8250 to roughly 8500. Any slip here puts it down to 8250 fairly easily. Dow volume has risen the past two selling sessions as it tests the bottom of the range, signaling more selling pressure but no breakdown. Now for the head and shoulders to complete the Dow has to break 8250. Still for upside it would be best to hold in this range and not move toward completion of the pattern. With continued war talk and no real upside catalyst, that is the outside chance.
Stats: -88.04 points (-1.03%) to close at 8447.35
Volume: 1.389B (+10.55%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
THURSDAY
Wednesday was for sellers again on earnings misses and earnings warnings. That pushed the indexes to the edge of the recent trading range that is part of the formation of the right shoulder of the head and shoulders pattern. There was some late buy on close programs and most of the recent leaders are still holding up, but much like the consumer and the economy, the leaders are not going to be able to hold up the rest of the market without some renewed interest. War worries, increased oil prices, valuation concerns, and just overall uncertainty are keeping investors from moving back into stocks at this point. In short, the indexes are still trying to consolidate their gains off the October low but have come under pressure from other sources.
The SOX broke below the recent trading range and the other indexes are struggling, doing so after some pretty bad news culminating a lot of concerns and fears over the holiday economic picture and global effects on the economy. In spite of all that they indexes have not broken down. What often happens after a breakdown is an attempt to rally right back up, particularly if there is some good news to help give it a push such as ORCL surprising to the upside. We doubt it would be a successful move given the investor climate, more like a reflex bounce from the breakdown. The fact that the other indexes held on gives some support to the chance of a rebound bounce.
Even a reflex bounce will not change the picture, but will give some better exit points if no upside volume comes in to support the move. That is the key again: there has to be volume on the buying to show that there are more buyers coming into the market. If that does not happen the bounce will fail and it is best used to exit upside plays. Might last a day, maybe two, but if no volume, it will be hard pressed in this current climate to last longer.
We doubt that Thursday will be a run up from the get go even with the ORCL numbers. We still feel there will be an early test lower before any bounce attempt, kind of checking the bottom footing once more before plunging ahead. There is some important economic data coming out before the open (jobless claims), thirty minutes in (LEI), and then at noon (Philly Fed), all of which are important and could finally run the indexes higher on a positive upside surprise. The immediate upside levels to watch are the upside of the current trading range. Any move up that stalls there is pretty much ready for the fork.
Support and Resistance
Nasdaq: Closed at 1361.51
Resistance: The exponential 50 day MVA (1373.45). The 10 day MVA (1393.54) and the 18 day MVA (1400.26). The August high at 1427 is the focal point. The 200 day MVA (1470.12). Price resistance at 1500. 1574, the May low, is next.
Support: The simple 50 day MVA (1361). 1357.09, the October 1998 bear market low. July, August, and September interim highs at 1345. Some price support at 1300.
S&P 500: Closed at 891.12
Resistance: The simple 50 day MVA (895), the exponential 50 day MVA (900). The top of the late October consolidation range at 899. The July, August and September interim highs at 909 to 911. 921 is some price resistance. The early November high at 925.66 and key resistance. Price resistance at 950. 965, the September 2001 closing low along with the August 2002 high.
Support: The bottom of the October consolidation range at 875 is some price support. The September 2000/May 2001 downtrend line at 857. The March down trendline at 838. 850 to 855 (the October 1997 and Q2 1998 lows).
Dow: Closed at 8447.35
Resistance: The October high at 8500 is some resistance. The exponential 50 day MVA (8519). The top of the recent range at 8630. The late July and early September interim high at 8726 to 8762.14 (8745 closing). The early November high at 8800 is key. A range of resistance from 9000 on up to 9050.
Support: 8250, the bottom of the October consolidation range. Then 8000.
Economic Calendar
12-17-02
CPI, November (8:30): 0.1% actual, 0.2% expected, 0.3% prior.
Core CPI: 0.2% actual, 0.2% expected, 0.2% prior.
Housing starts, November (8:30): 1.697M actual, 1.690M expected, 1.603 Prior.
Building permits, November (8:30): 1.725M actual, 1.715M expected, 1.772M prior.
Industrial Production, November (9:15): 0.1% actual, 0.2% expected, -0.6% prior (revised from -0.8%).
Capacity Utilization, November (9:15): 75.6% actual, 75.4% expected, 75.5% prior, revised from 75.2%.
12-18-02
Trade balance, October (8:30): -$35.1B actual, -$37.0B expected, -$37.1B prior (revised from -$38.0B).
12-19-02
Initial jobless claims (8:30): 441K prior.
Leading Economic Indicators, November (10:00): 0.3% expected, 0.0% prior.
Philly Fed, December (12:00): 5.3 expected, 6.1 prior.
Treasury budget, November (2:00): -$50B expected, -$54B prior.
12-20-02
Q3 GDP, final (8:30): 4.0% expected, 4.0% prior.
Chain deflator (8:30): 1.0% expected, 1.0% prior.
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End Part 1 of 3
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