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world stock market, us stock market
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12/19/02 Technical Traders Report Update
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Thursday: None issued
Buy alerts issued: PFCG; AIG
Trailing stops issued: None issued
Stop alerts issued: OEX
You can sign up for Technical Trader alerts at the following link:
http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- Material breaches, war worries, and oil prices making the holiday season less than cheerful.
- Economic data continues to crawl out of the recession.
- DJ30, SP500 continue to break down while SOX, Nasdaq attempt to hold the line.
- Team Trades
Indexes sag as gold and oil rise on world tensions.
The market was putting together a relief move after an early test lower. The indexes were positive and moving up well when the UN inspectors indicated that Iraq's disclosures contained incomplete and insufficient information. The disclosure was so incomplete it was hard for the inspectors to effectively describe the problems. That shook the market because it then was set more or less in stone that the U.S. would declare Iraq in material breech. Indeed, just after the inspectors' address to the U.N. sources indicated the U.S. would in fact make that assertion. A mild attempt at stabilizing on the positive economic news gave way and the indexes were back in the red for the remainder of the session.
With that the market continued its floundering in a sea of uncertainty. Oil prices are higher, and the Venezuelan predicament on top of potential Iraq war is a double whammy. That hurts businesses and is in effect a tax on the consumer. Then the dollar continues to fall, making U.S. investments less attractive.
Here we get a bit into editorializing, so be warned or skip ahead. The idea that a weaker dollar is good for the U.S. is nonsense. The idea is that a weaker dollar helps manufacturing by making exports cheaper for others to buy. That may be true, but it puts so much more at risk, e.g., the equity markets and the one consistent driver of the economy (the consumer). If the consumer loses purchasing power it cannot buy as much. More sinister, if the dollar starts to drop too far foreign investors dump it to then invest in other markets (they have to buy the currency of the other country or market to invest in it). The flood of dollars coming home drives the price down further and the snowball grows bigger and bigger. We have tried a 'controlled decline' in the dollar before and it failed miserably. Once you start that ball rolling it is hard to stop it as James Baker found out.
There are much better ways to get business up and running. For one thing you can make the tax laws fairer so investing and doing business in the U.S. does not put you at a competitive disadvantage with the rest of the world community. Why do you think businesses were heading overseas? Because doing so helps make them at least competitive with respect to overseas income. Instead of slapping a band aide on it and stopping companies from doing this and thus keeping them at a competitive disadvantage and curtailing their expansion, why not change the tax laws so businesses would want to move to the U.S.?
Why not? Because the government is in the business of regulation; that is how it survives and justifies itself. You could take the U.S. Code of Regulations (all of those 'laws' that enact legislation), tear out and throw away every other page, and you would still have hundreds of thousands of pages of regulations. Government loathes repealing its regulations. Better to slap another one on to 'fix' a symptom. That way government justifies its existence by 'fixing' problems (albeit ones that it created), and at the same time insures its existence because of the need to enforce the ever-increasing number of regulations. Our government has grown to incredibly large and complex levels as it attempts to regulate every aspect of business and individual lives. Ironically, those pushing for more and more regulation do so in the name of individual liberty, apparently missing the historically chronicled link between larger government and the destruction of individual liberties that results. The U.S. government far exceeds the founding fathers' vision of a union of SEPARATE states with a national government to provide defense, smooth out the dealings between the states, and enforce the rights set out in the Constitution. It is now a be-all and do-all for everybody. It was not designed to do that, and it fails horribly in trying as it has effectively stymied business investment in the U.S. and has failed to help those it supposedly tries to help, instead creating a larger and larger group that is dependent upon the government. It has become its own animal to the detriment of its citizens and future citizens.
THE ECONOMY
Leading indicators sport best gain in almost a year.
+0.7% in November versus 0.6% expected and 0.1% in October. That is the first positive turn in 11 months (well, not exactly as October was revised to positive) for these indicators that look down the road 6 months. That means if these are correct the economy still has some floundering to do through the first of 2003 before things get better. That is a positive, however, as the economy has continued to improve through this 'soft patch' of LEI reports.
Philly Fed rises to 7.2.
Philadelphia manufacturing rose more than the 5.0 expected and the 6.1 reading in November. That is good news and brought about a brief pop in the market, but it was not enough to overcome war and international fears. The market simply was not ready to believe that better economic times foretold by these numbers were strong enough to stave off problems associated with going to war with Iraq.
Jobless claims fall to 433K but still too strong.
The labor department for the third week cautioned not to read too much into these numbers due to seasonal adjustments. That did not stop the speculation, however, particularly with continuing claims jumping 229K, indicating that those already out of work could not find jobs. Now the administration is pushing extension of unemployment benefits. While that will undoubtedly help some people this is hardly stimulus to jumpstart the economy. What is needed is stimulus that creates jobs so people can get back to being productive and not have to live off of other taxpayers. That is where this money comes from: you and me.
THE MARKET
The large caps continue to suffer though selling was found in stocks of all shapes and sizes. The A/D line was narrower, however, indicating the selling lost some intensity even as the Nasdaq traded places with the NYSE and showed a distribution session (selling on rising volume). The move broke the Dow and SP500 out of the bottom of their recent trading ranges and opens the door for a test of the next support, a level that marks the completion point of the head and shoulders top patterns.
Of all the indexes, the SOX was trying to pull things back together Thursday. It closed down less than one point, showing a tight doji on the candlestick chart at some support at 300. The SOX has been weak and the market suffered as a result. After breaking below the recent trading rang of the past week it looks ready to make a bounce back up.
On top of that we saw very few breakdowns in many leading stocks. There were not a lot of breakouts, but there were some. Further, leadership groups such as telecom (VZ, NXTL, BCGI) still held up very well. The action is sluggish and frustrating, but it is not a breakdown yet as several of the leadership groups reveal.
Sentiment Indicators
Sentiment is gloomy once again. Back in late November we wrote a few columns about how it would be necessary after the good November run for sentiment to turn sour on stocks once more. Right now on Bloomberg and CNBC the predominant guest is bearish, seeing no fundamental change in the market, and predicting a dour 2003. Right now the economic indicators are not pointing that way. They could change if the Iraq and Venezuela problems spread to other countries, but for now there is nothing to indicate that the recovery is going to implode, particularly with the Fed declaring war on deflation and more stimulus to come. There are a lot of things the Fed can still do (take banks off of restriction, sell bonds, etc.) to reflate the economy.
The gloomy sentiment is just about at the right levels with most saying the rally to the upside is over. It may turn out to be that way; after all, sentiment is a secondary indicator. Nonetheless, it is an alert for us that perhaps the current selling is ready to abate just as the indexes try to move toward completing their head and shoulders patterns. There are some positive signs in tech patterns that point to a bounce. For now it would be just a bounce, but the sentiment indications are similar to that during each pullback in the rally, so we are watching closely.
VIX: 34.55; +2.8
VXN: 49.47; -0.17
Put/Call Ratio (CBOE): 0.95; +0.09. Highest level on this selling spree.
Nasdaq
Slightly undercut the October 1998 bear market low and then closed with a doji on rising volume. Looks ready for a bounce.
Stats: -7.41 points (-0.54%) to close at 1354.1
Volume: 1.658B (+8.2%). Distribution session (rising volume on selling) with volume almost reaching volume for the first time in three weeks, but look at the discussion of the chart pattern below. With that pattern the higher volume is not that bad a thing.
Up Volume: 604M (+390M)
Down Volume: 1.029B (-278M). Lots of sellers, but not as dominating a ratio.
A/D and Hi/Lo: Decliners led 1.2 to 1. Lost its punch.
Previous Session: Decliners led 2.36 to 1
New Highs: 42 (-3)
New Lows: 77 (+10)
The Chart: http://www.investmenthouse.com/cd/$compq.html
The techs opened lower then tried to rally, tapping the January to March down trendline on the high and then falling back. On the close Nasdaq held right at the October 1998 bear market low, a point that also represents the late July and early September interim highs (not just a random number in other words). Volume was higher yet again on the selling, technically another distribution session. The candlestick pattern showed a hammer doji, however, a signal that can indicate a move backup after there has been some selling. As the SOX showed the same pattern as well as several large cap tech stocks (MSFT, IBM, DELL, CSCO), the higher volume indicates that there were buyers trying to come into the market and they had more strength. They just lacked the strength to completely overpower the sellers. They were catching up as the up/down volume and A/D ratio indicate as well. We expect a bounce attempt up toward 1400.
S&P 500/NYSE
The large caps also tried a rally attempt, but were sacked by the continuing waves of Iraq news that point toward war. We are hearing the same things about large caps we heard in early November: they are breaking down in a failed rally attempt, and the rally has failed. Again that sentiment indicator does not mean the rally is guaranteed to resume, but it is the type of climate that sets up moves higher.
Stats: -6.87 points (-0.77%) to close at 884.25
NYSE Volume: 1.355B (-2.41%). Lower volume on the selling indicating that the intensity backed off just as the large caps broke below their recent trading range.
Up Volume: 397M (+107M)
Down Volume: 955M (-132M)
A/D and Hi/Lo: Decliners led 1.19 to 1. Very modest declines
Previous Session: Decliners led 1.94 to 1
New Highs: 33 (+5)
New Lows: 57 (+3)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps tapped the exponential 50 day MVA on the high (899.19) after opening lower. That is the way you want to see the action, but it was wrecked by continual news releases regarding compliance, etc. On the close it broke the range of the past two weeks dropping toward 875 (880 on the low) that marks the completion point of the head and shoulders pattern. It made a half hearted bounce late, but the action was sluggish. The candlestick pattern was not as clean as Nasdaq and the SOX with respect to the doji. It is struggling, but if IBM, MSFT and other big caps that are poised to bounce start the move, the SP500 will move with them. Lots of resistance at 900 (50 day MVA) then 909 to 911 that could stall it out after a weak bounce. Volume on the upside will be the key.
DJ30:
Mimicking in the SP500, the Dow tapped the 50 day MVA on the high (8505) and fell back to close below the recent trading range. Dow volume jumped on the move as stocks such as PG, MMM and other sold on rising volume. It does not look well, but as noted, MSFT, IBM and also HPQ look ready to make a move that could drag the blue chip index back up some. It too has to clear that 50 day MVA and then 8750, but it is one day at a time. If it does not attract the volume we would expect it to fail at one of those resistance points.
Stats: -82.55 points (-0.98%) to close at 8364.8
Volume: 1.355B (-2.41%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
FRIDAY
Q3 GDP is out Friday and that is about all from the economic front. As we have seen, however, other than slight pops from solid data, it is world news, not economic, that is ruling the market. On top of that Friday is triple witching and index rebalancing. That is part of the volatility we have already seen this week, and we believe that the majority of the action regarding those events is over. Moreover, the issues swirling around Iraq are getting adjusted into the market the past week.
All of that could actually lead to an up session on the indexes. The market has taken some bad news and sold back with dour views about its prospects coming back to the forefront. At the same time, despite claims of big breakdowns in large caps, there are key large caps holding up very well (e.g., C). It looks ready for a bounce higher. That may prove to be nothing more than a reflex bounce up to the top of the recent range, but if nothing else that gives better entry points on put plays and exit points on upside plays that are not cutting it. In addition, that will no doubt give rise to some breakouts and resumptions of moves from the current crop of leaders.
Support and Resistance
Nasdaq: Closed at 1354.10
Resistance: The exponential 50 day MVA (1372.70). The 10 day MVA (1386) and the 18 day MVA (1395). The August high at 1427 is the focal point. The 200 day MVA (1467). Price resistance at 1500. 1574, the May low, is next.
Support: 1357.09, the October 1998 bear market low is still holding. July, August, and September interim highs at 1345. Some price support at 1300.
S&P 500: Closed at 884.25
Resistance: The simple 50 day MVA (897), the exponential 50 day MVA (899), and 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 856. The March down trendline at 836. 850 to 855 (the October 1997 and Q2 1998 lows).
Dow: Closed at 8364.80
Resistance: The October high at 8500 is some resistance. The exponential 50 day MVA (8513). 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): 433K actual, 401K expected, 444K prior (revised from 441K).
Leading Economic Indicators, November (10:00): 0.7 actual, 0.6 expected (revised from 0.3%), 0.1% prior 9revised from 0.0%).
Philly Fed, December (12:00): 7.2 actual, 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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TEAM TRADES
AIG: AIG is coming off a test of the 50 day MVA, riding down the 10 day MVA. After failing at the 10 day Tuesday, AIG started down with more volume Wednesday and continued the move Thursday. After rallying early with the market, AIG started back down. It tanked hard, reaching the buy around 2:30ET. We could have entered then, but after such a hard fall it would most likely make a bounce attempt. That is what happened with AIG bouncing up a half point. With about 10 minutes to go it capped out the bounce at the 15 minute MVA and started to roll over. That was the opening we were looking for and moved in with the put play. The options were trading 4.50 by 4.80. With not much time to dicker we put in the order at the ask price. The fill came and then the stock edged a bit lower toward the close. We are now going to let it move down the 10 day MVA for as long as it will take us.
End Part 1 of 2
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world stock market
us stock market
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