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online trading, invest financial
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12/26/02 Technical Traders Report
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Technical Traders Report Subscribers:
HAPPY HOLIDAYS!!!
* * HOLIDAY SCHEDULE * * *
Thursday: Market summary, best plays
Saturday: Full report
MARKET ALERTS
Targets hit alerts issued Thursday: None issued
Buy alerts issued: None issued
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:
- Low volume volatility turns a gain around.
- Holiday sales continue to disappoint analysts but numbers are deceptive.
- Small and mid-caps outperform as large cap indexes try to hold trading range.
It runs up, it runs down, it has no volume.
The market displayed the characteristics of a low volume session: the ability to take a direction and drive stocks in that direction. Unfortunately, the lingering worries that have kept the indexes fighting in the current consolidation range again emerged as talk of weaker retail sales was followed by Iraq claims the U.S. had bombed civilians. Those reminded investors of the current risks in the world, and with that the strength in retail, financial, and technology stocks withered and so did the rally.
The Dow gave back over 100 points and the Nasdaq a whopping 25 points as the large caps gave and then took back. In the end they were still in the recent trading ranges, holding at the bottom rungs. NYSE breadth was positive, however, as small and mid-caps stocks held their ground. Indeed many stocks continued looking quite solid in their patterns, refusing to give up ground even with the continued pelting of world worries.
THE ECONOMY
Jobless claims continue their volatile turns.
Claims fell 55K last week to 378K, lower than the 405K expected and the 433K prior. As with the other recent numbers, the Labor Department said not to get too excited as the seasonal adjustments made the actual number a very hard read. Indeed, the numbers have been swinging back and for the with wild gyrations the past month as the government tries to get a grip on the job market. The jobless claim drop was the largest since October 2001 yet the 4-week average rose to 404,500 (+2500).
What does this show? One, wild volatility is a sign of change. The job market has been in the tank for over a year, and swings in reports with positive revisions indicate that change is occurring. Two, though change is taking shape, it is not sweeping change. There are very few jobs being created. This unfortunately was indirectly indicated in the Tuesday durable goods orders that showed a 1.4% decline (+0.8% expected) and a 2.2% decline in non-defense spending (after a 5.9% jump in October). The latter is a proxy for corporate spending. After a promising jump two straight months this latest figure indicates that the corporate side is still in its own stat of flux, trying to improve but very much prone to setback in the early stages of business recovery.
Retail woes continue to get the spotlight.
Wal-Mart warned (now semi-weekly reports?) that December sales were going to be +2-3% as opposed to +3-5% as originally reported. It noted a big surge in the last few days before Christmas, but said it was too little too late to help hit the target. This continued the drumbeat for a bad holiday season, one the WSJ says will be the worst in 30 years.
There are major, major flaws in this view. The idea that is being floated out on the financial stations and every other news station is that the consumer is no longer consuming or otherwise running out of steam. That is a perfectly fine view with us as it should help get some stimulus; problem is, it will be the wrong kind of stimulus, aimed at the demand side as opposed to the supply side (business) in order to get businesses to invest in their business through capital goods purchases and hiring personnel.
What most fail to report, however, is that we are not discussing falling sales. Sales are increasing. At the worst estimates it will be the worst sales INCREASE in years as opposed to lower sales. Further, sales are measured in dollars, not units sold. Practically, that is a necessity because you cannot report that 10 million Sponge Bob Squarepants dolls were sold, 5 million golden tan Barbi's, etc. Still, when there is discounting ongoing, reporting gross sales as the gauge of consumer activity gives grossly wrong impressions. Several private surveys from various polling companies have determined that consumers are spending the same amount they spent last year on holiday shopping. Thing is, they can by more stuff with the same number of dollars because of all the discounting. Thus stores profits are lower because of the sale prices and the inability to move enough volume to make up the difference.
Does that mean the consumer is now an endangered species? Hardly. We saw this with the interplay between auto sales, retail sales and durable goods sales all through this year when one month consumers would buy autos and not much else and then switch the next month to apparel while backing off on autos. Consumers were out in droves buying, but they were looking for bargains all the while, basically forcing the stores to lower prices. Then there are the gift cards that saw a 70% increase in usage this year (you know, a Best Buy give certificate card, a movie card, etc.). That is a huge jump as was the jump in online sales. Gift card revenue is not booked until the cards are redeemed. Thus there will be a large jump in 'sales' starting today. The consumer is still willing to consume, but since stores will give discounts that is what they demand.
THE MARKET
The market ran up out of the gates after two selling sessions moving into Christmas. The move continued until investors were reminded about problems with Iraq claiming the U.S. was bombing civilians. What was a tentative move higher was quickly trashed on a resumption of the same concerns that have held the market in check all month.
The action has been under wraps the entire month after peaking right after Thanksgiving. For the past three weeks the indexes have moved laterally in a trading range. This is despite the continued daily blows from war worries, retail worries, and oil price increases. While the action has been trying the patience of most after the nice run out of the October low, the fact that the market has been able to take the flogging from all sides and hold in this range is actually quite a positive.
We may be accused of looking at the glass as half full, but it is important to wade through the daily hype and look at what is going on. With many stocks holding up very well in their patterns, improving economics despite being overshadowed by the holiday retail numbers, and the large indexes doggedly holding in the ranges, we don't want to let the daily parade of bad news cloud our view of what the market is saying. It is not standing up and shouting, but its ability to continue to work laterally in the face of daily bad news is noteworthy. Not too long ago the market would be sinking lower and lower on this daily barrage of negatives.
Market Sentiment
VIX: 31.08; +1.07
VXN: 45.36; +0.23
Put/Call Ratio (CBOE): 0.71; +0.16
Nasdaq
Techs tried to pace the move higher with some bargain hunting, but could not hold the move over the short term MVA. About all the move did was show how weak the upside action was, but it did not take the indexes out of the current consolidation range.
Stats: -4.58 points (-0.33%) to close at 1367.89
Volume: 814.824M (+55.2%). Big jump but it was the lightest full session of the year.
Up Volume: 370M (+205.192M)
Down Volume: 423M (+91.736M)
A/D and Hi/Lo: Advancers led 1.15 to 1. Down market, but managed to cling to positive on the close. Not a great barometer as the index was falling on the close.
Previous Session: Decliners led 1.32 to 1
New Highs: 55 (+16)
New Lows: 37 (+21)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Moving laterally still in the range it traded in during the first three weeks of November before the run up through Thanksgiving. After that run the index has come back on the renewed valuation worries coupled with uncertainty regarding oil and war. For now it is holding above the October 1998 bear market low near 1357 with a top of the range from 1400 to 1425. Thursday Nasdaq moved up just over the 18 day MVA on the high (1392.58) but then closed below the 50 day MVA (1378, simple). While sluggish, Nasdaq has not shown much distribution during this sideways move. While frustrating short term, the action remains more of a consolidation, action that looks even better when you factor in all of the uncertainty surrounding the world events.
S&P 500/NYSE
The large caps also made a play for to break over the moving averages, but were tossed back as well. Financials were looking better; they gave back most of the gains, but were not hammered.
Stats: -2.81 points (-0.31%) to close at 889.66
NYSE Volume: 716.478M (+55.08%)
Up Volume: 389M (+257.399M)
Down Volume: 310M (-7.815M)
A/D and Hi/Lo: Advancers led 1.44 to 1. Good action from the small caps and mid-caps kept the ratio positive as they held onto their gains.
Previous Session: Decliners led 1.1 to 1
New Highs: 62 (+45)
New Lows: 17 (-4)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Rallied over the short term moving averages on the high (903.89) but fell back to close negative. Intraday it also crossed the 50 day MVA (901.71) but gave that up as well when it rolled over. Hardly an inspiring move but it also kept the index trading in its 3-week range that is more or less where it consolidated in late October after the initial move off the lows. The index has definitely shown some weakness in its inability to hold the earlier breakout and another distribution session or two than Nasdaq, but it has also taken a lot of guff from world events and valuation fears and managed to hold on. That does not mean it is a lock to move up and out of this range; the start of a war will send all the indexes lower near term. Still, it has managed to hold this support range over 875 as it works through all the bad news.
DJ30:
Very similar action, moving over the short term and 50 day MVA on the high (8565.01) but unable to hold that triple digit gain and closing even lower. The blue chips continue to struggle as well through their own consolidation above the October consolidation low at 8250 and a high near 8650. Not inspiring but it too manages to hold the line and move laterally during all the bad news. There is some internal strength still holding it up. As with the consumer, the question is how long it can hold up without some real investor support.
Stats: -15.5 points (-0.18%) to close at 8432.61
Volume: 716.478M (+55.08%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
FRIDAY
Thursday it seemed everyone was out at the mall and not interested in stocks. We have a feeling the same thing will occur Friday though there could be some more interest as portfolio managers do some more buying and selling due to the ongoing rebalancing that has to be completed early next week.
One thing we are going to look for is some moves from the smaller issues. We have several on the report and we are watching a large basket of them. They were showing signs of life today relative to the other stocks, and if we start getting some movement the percentages say to play those stocks at this time of the year. Most all of those stocks that have been in good patterns are holding up very well with some starting to make moves Thursday. That could be one of the more lucrative areas the next few weeks. Again, the overall market is sluggish when viewed from the large cap perspective, but not breaking down as of Thursday. If they manage to continue holding in the range that gives some support to a smaller issue move.
Friday we are not going to get too aggressive unless we see some of the smaller issues make the moves we want. Smaller caps can give us the big volume moves we want to see even with overall low market volume; their float is not so great so it does not take massive participation to break them out. Thus we are keeping a close eye on these for further life signs that signal it is time to enter.
Support and Resistance
Nasdaq: Closed at 1367.89
Resistance: 50 day MVA (1378, simple). The 10 day MVA (1378) and the 18 day MVA (1386). The August high at 1427 is the focal point. The 200 day MVA (1456). 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 889.66
Resistance: The simple and exponential 50 day MVA (902, 898), 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 852. 850 to 855 (the October 1997 and Q2 1998 lows). The March down trendline at 830.
Dow: Closed at 8432.61
Resistance: The October high at 8500 is some resistance that has not been totally cleared. The exponential 50 day MVA (8507); simple at 8540. 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
12-23-02
Personal Income, November (8:30): 0.3% actual, 0.2% expected, 0.3% October (revised from 0.1%).
Personal Spending, November (8:30): 0.5% actual, 0.4% expected, 0.4% prior.
12-24-02
Durable goods orders, November (8:30): -1.4% actual, 0.9% expected, 1.7% October (revised from 2.4%).
12-26-02
Initial Jobless claims (8:30): 378K actual, 405K expected, 433K prior.
12-27-02
Michigan sentiment revision, December (9:45): 86.5 expected, 87.0 prior.
New home sales, November (10:00): 1M expected, 1.007M prior.
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End Part 1 of 2
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