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world stock market, us stock market
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12/21/02 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Friday: None issued
Buy alerts issued: GPN
Trailing stops issued: None issued
Stop alerts issued: CREE
You can sign up for Technical Trader alerts at the following link:
http://www.investmenthouse.com/alertttr.htm
HOLIDAY SCHEDULE
Monday: Market stats summary and play tables
Tuesday, Wednesday: No reports
Thursday: Market summary, best plays
Saturday: Full report
SUMMARY:
- Relief rally fueled by expirations, rebalancing.
- Q3 GDP up 4% as expected but still mostly led by the consumer.
- Rally was pleasant, but same obstacles overhang the market: slow economic recovery and a war that seems inevitable.
- Subscriber Questions
Selling gives way to a relief bounce.
The Nasdaq and SOX as well as many of their components ended Thursday with the look as if they were ready to rally after three weeks of selling. That is how it started Friday, with the Nasdaq and SOX in the lead. Then the Nasdaq hit hits 50 day MVA and failed to take it out. That swing and miss seemed to take the guts out of the techs. They dove off of their highs and while closing positive, never regained any momentum. That was taken by the Dow which was joined by the SP500 in rallying to close near session highs.
At first blush volume looked strong, rising above average for the first time in weeks on both the Nasdaq and NYSE. Options expiration, the first ever individual stock futures expiration, and Nasdaq 100 and SP500 rebalancing, however, all worked to drive volume higher as institutions worked to swap stocks in and out of portfolios to match the new look of these indexes. Thus it is hard to say that the volume was the result of a surge of buyside interest at these levels. The lack of strong technology participation left a hole in the rally in addition to the fact that resistance won out each time it was approached. This was a reflex bounce that was set up; it started as expected, but for now it has all the hallmarks of being just a bounce. That can change, but until then treat it with caution.
THE ECONOMY
Q3 GDP rises 4%.
Fueled by strong consumer spending with particular emphasis on autos. Three-fourths of the activity was consumer related. Business fixed investment (computers, software, construction, etc.) fell at an annualized 0.8% rate versus the 0.7 drop previously reported in the preliminary numbers. That is the gaping hole in any economic recovery. As a brighter spot, after tax corporate profits rose 2.1%, but that is also a result of the surge in productivity driven by the layoffs and getting the most out of each employee and technological system. Real sales remained solid at 3.4% annually, down from the 3.5% but so much better than the -0.1% in Q2. These remain encouraging, but business investment is nowhere near the level it needs to be to salvage the economy.
We wrote all through the summer that the consumer could not last forever and that banking on the consumer to pull us out of recession was a very risky gamble. After all, the consumer was spending like a sailor on shore leave before a big battle before, during, and after the recession and that did not keep us out of recession and has yet to produce a big (or small) economic recovery. Now economists have adopted that position, saying that Q4 will show dreadful consumer spending, citing auto sales that fell 27% in October and WMT and TGT reporting early December sales at the low end of expectations.
As usual the pendulum of emotion has swung too far to the other side. WMT reported slower than hoped sales in November, but November retail sales were very solid. The malls are packed. We were again conducting surveys since Wednesday (some major sales promotions were on Wednesday), and mall parking lots were full. Last year the reports were of a dreadful holiday season, but we saw the same action occurring. Maybe those shoppers are not buying anything, but why would they be at the mall then? Common sense is often not wed to the thought processes of analysts.
In short, it is not going to be a holiday season that pulls the country out of recession (it would not do that regardless because consumer consumption has not been the problem), but it is not going to plunge us back into a double dip as some expected. As we saw during the past two years, consumer spending ebbs and flows among various consumer sectors. One month it is autos, the next it is other durables, the next it is non-durables. Consumers did not buy cars in October because they were buying other things for the coming holiday season. There may even be quite a few Jaguars and Lexus (Lexi?) 'under' the tree if their commercials have any impact.
In the final analysis, the business side needs to invest. It needs a reason to invest, however, and right now the economic prospects are not giving it that reason. That is why the stimulus package needs to provide what the economy is not: incentive to spend on capital goods. That means the piddling accelerated depreciation being talked about that was also on the prior package won't help. If a small business can already expense $24K of equipment in the year it is bought, it is no incentive to be able to depreciate that amount of equipment on an accelerated basis. That is why there was no investment as a result of the last stimulus package: it gave you nothing new, no reason to buy. You have to get something that is not already there, e.g., the investment tax credits for investing in new business equipment that worked so well in the 1981 emergency economic recovery act. With those you have a no brainer decision: pay $1K in taxes to the government and get nothing, or pay $1K to a computer, telecom, or other equipment maker and get something for that $1K, something that you can also depreciate. THAT is how you get money back into the economy in a hurry. You don't have to wait or sell something and then take a deduction; you spend the money now, you get a benefit now and at tax time. To insure both republican and democratic approval, make it apply to small businesses and corporations. After all, they account for 80% of the jobs created in the country. You get them back on track, you get the economy on track. This is a proposal that neither democrat or republican can denounce if they are truly interested in getting the economy back on track and helping the majority of U.S. citizens. All other proposals thus far are so much pork barrel politics trying to get votes. Call your senators and House representatives and tell them this is what is needed because small businesses are NOT seeing any recovery at this point.
Senate link for phone numbers: www.ussenate.com
House representatives: http://www.house.gov/writerep/ . From here find your representatives and then get their numbers and call. The power of the phone call followed by a letter or email is powerful.
THE MARKET
They were poised for a relief rally and they gave it Friday. NYSE action was broad, Nasdaq not so much. Volume was up, typically indicating more than just a relief bounce, but it was helped by a lot of expirations and rebalancing. Maybe it will turn into more than just a bounce, but Friday resistance levels kept the indexes well in check and the indexes did nothing to break up the toppy patterns that have formed.
Sentiment Indicators
That gloomy sentiment we reported Thursday night had indeed reached a level to provide a bounce. The question is whether it was enough to provide continued fuel to push stocks higher. When the gloom hit these levels back in late October and during the early November pullback the patterns were a bit different. For example, the semiconductors were in what we refer to as 'building' patterns, i.e., still way down in their larger bases, but setting up to make significant moves over or off of resistance. The wireless telecoms were doing the same thing as well as some other big tech sectors. On top of that the early market leaders were forming very nice bases. All of this was based on anticipation of better economic news as stocks started to make their moves. When the better economic news actually came out, the moves accelerated even more.
Right now there are still stocks in leadership rolls that have not broken down. Some are testing their breakouts while others are forming up and moving out of new bases. The telecoms (e.g., NXTL, VZ, BCGI) are still in excellent shape as are many smaller business services stocks (suggesting that there is some ongoing business recovery), scientific & technical instrument stocks, and smaller consumer stocks are in very good shape. They are moving up, breaking out, testing the breakout, and then moving up further. Very nice action. We don't include gold stocks in that mix as they are driven by short term swings in world events.
There appears to be no other group underlying these stocks, however, as there was in October and November. That does not mean these stocks won't continue to perform, but without the rest of the market setting up with good building patterns to support the overall market averages, it gets harder and harder for the stronger stocks to continue their moves en masse. When it all comes down to it, the big M (for 'market') controls. The big indexes have fallen back from their prior breakouts and are struggling to hold and break up the toppish patterns they are forming. They have not broken down, but they have to make the moves that re-establish their breakouts and new uptrends.
VIX: 31.47; -3.08
VXN: 48.51; -0.96
Put/Call Ratio (CBOE): 0.88; -0.07. Still holding at the very high end of the range even as the indexes enjoyed a strong move up.
Nasdaq
Gapped up, tapped the 50 day MVA on the high, but could not take it out. Did not show a lot of strength.
Stats: +8.95 points (+0.66%) to close at 1363.05
Volume: 1.996B (+20.38%). Huge volume jump, the highest since 11-21. Technically an accumulation day, but with all of the rebalancing and expirations it was somewhat artificial. Moreover, the Nasdaq failed to make much headway, more of a sign of churning than a powerful move higher.
Up Volume: 1.22B (+616M)
Down Volume: 680M (-349M)
A/D and Hi/Lo: Advancers led 1.32 to 1. Very mediocre breadth.
Previous Session: Decliners led 1.2 to 1
New Highs: 54 (+12)
New Lows: 67 (-10)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Two shots at the exponential 50 day MVA (1372) were rebuffed, and the techs just lost their stomach even as the Dow and SP500 rallied late in the session to close near session highs. While both the Nasdaq and the SOX showed signs Thursday they wanted to rally, holding up better than the rest of the indexes (the SOX looked particularly the best), after the first run of the session they gave up their leadership roles.
In the end the Nasdaq showed a very tight doji (following the hammer doji Thursday) right below the 50 day MVA on a big volume jump, barely moving back into the recent trading range. Maybe it is still massing on the borders for a move higher, but the small gain on the big volume surge was less than consoling. It looked a bit like churning, i.e., where stocks trade hands on high volume. When this occurs at the top of a run that is a bad sign: sellers have caught up to the buyers (there are not enough buyers to push it higher and overcome all the sellers). As Friday's action occurred after three weeks of selling it can be a positive, i.e., the buyers have caught up with the sellers, buying all the stock for sale and thus keeping the market from falling further. As more buyers come into the market the index starts back up. Those buyers still have to prove they are going to show up.
S&P 500/NYSE
The large caps outperformed the large cap techs, managing a solid gain to punch right back into the recent consolidation range.
Stats: +11.51 points (+1.3%) to close at 895.76
NYSE Volume: 1.743B (+28.64%)
Up Volume: 1.327B (+930M)
Down Volume: 428M (-527M)
A/D and Hi/Lo: Advancers led 2.02 to 1
Previous Session: Decliners led 1.19 to 1
New Highs: 62 (+29)
New Lows: 43 (-14)
The Chart: http://www.investmenthouse.com/cd/$spx.html
A solid move up, but the large caps also could not break over the 50 day MVA (899). There were many positive attributes to the session: higher volume, solid point gain, closing near the session high. It was a good start, but there is much work to be done. First clearing the 50 day MVA, then clearing the recent trading range top (911; that is also the interim tops from July, August, and September), then breaking up the head and shoulders pattern by clearing 926. With that in mind, however, the best that can be said for now is that the index is back in its consolidation range; hardly a ringing endorsement at this point.
DJ30:
The best performer on Friday, rallying on some huge Dow volume. The interesting thing about the Dow as opposed to the other indexes is that there is no rebalancing going on with a lot of these stocks. Sure they had to be bought and sold as part of the overall rebalancing, but none of these stocks were themselves involved in the actual change. In any event, the Dow rallied hard on volume, closing at the session high. That action still left it below the 50 day MVA (8512 - 8513, simple and exponential) though it did get it back inside the recent consolidation range, something it had to do right away. It has to clear the 50 day MVA and take out 8800, the early November high that marks the left shoulder of the head and shoulders pattern. That is a tall order given the evolution of the pattern and what is behind it, e.g., the uncertainty of the Iraq war.
Stats: +146.52 points (+1.75%) to close at 8511.32
Volume: 1.743B (+28.64%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
End Part 1 of 3
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world stock market
us stock market
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