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world stock market, us stock market
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12/28/02 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Friday: None issued
Buy alerts issued: URBN; PFGC; CEPH
Trailing stops issued: None issued
Stop alerts issued: PIXR
You can sign up for Technical Trader alerts at the following link:
http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- Indexes fall from trading range on more of the same concerns.
- New home sales, business profits up as economy continues a very slow recovery, but higher oil prices are again a threat.
- Make or break time at the bottom of the October consolidation range.
- Team Trades
Combination of forces work the major indexes lower.
Korea reactivating its nuclear plants, Venezuela oil strike in its twenty-ninth day, Iraq situation showing no change continued to weigh on the market. Then there is the economic uncertainty again spawned by what has been erroneously called the worst holiday season in thirty years and the very real threat of higher oil prices. Ladle on some year end selling and the brew has been gagging stocks.
This is the same combination that has stalled stocks with the fear that the economy will not continue to improve. The November housing numbers were solid again, providing support for a slowly recovering economy, but there are real threats out there both from foreign problems outlined above and domestic problems (administration failing to release any oil from the reserve to defuse spiking energy prices; caving in on stimulus that will really work) that can work to destroy the ever so slow economic recovery. The market is very good at sniffing out these problems, and the indexes are under stress as leading stocks start plowing lower. The recovery is on track, but the tracks are getting wobbly.
THE ECONOMY
New home sales surge 5.7%, well beyond expectations.
While accounting for only 20% of home sales, they were expected to fall 0.9%. The record sales (fourth straight month over 1 million annualized units) eclipsed the recent sales record (on an annual basis) and demonstrates how home sales continue to support the economy. This has also shown up in non-auto retail sales that showed a 0.5% overall gain in November with furniture sales rising 2.3% and building materials and electronics (all stuff that goes into new homes) rising 0.9% each. Lower interest rates lead to more home sales that spur other purchases as surely as lower taxes spur more investment in America that leads to greater economic activity.
What does this show? The consumer continues to consume. Holiday sales have been panned on a dollar basis (sales are measured in dollars, not units), and the erroneous conclusions drawn are many. One is that it was the worst holiday season in 30 years. No, if the projections are correct (and with high gift card giving that is questionable), it would be the slowest gain in sales in that time. Huge difference. Second, it has been concluded that consumers are going into hibernation. As we have reported, most consumers surveyed said they were going to spend less but they actually did not. They were able to buy more for the same amount of money due to the discounting. Retailers sold a lot of 'stuff' but did not get more money for it. Thus sales did not rise as much as they wanted but that does not mean the consumer was not spending. The consumer was not without caution (we have said the consumer could not keep up the pace indefinitely), but looking at home sales, furniture sales, and holiday sales the consumer is not a bust. The consumer continues to take advantage of value as low interest rates on homes and autos as well as discounted pricing shows.
The oil threat.
As oil moves over $30 per barrel it was comforting to hear that U.S. oil stockpiles were higher than expected. That alone, however, is not enough to calm the world oil market. We have all seen the effects of oil when it spikes higher by 30% or more: each recession in recent decades has been immediately preceded by such a move in prices, including the last one when we pussyfooted around while OPEC postured to get prices higher. We let them do it with media experts buying into the asinine 'lack of capacity' argument when just two months earlier the world was awash in extra oil. We waited too long to use the strategic oil reserve to mitigate oil prices, and higher prices helped usher in the recession.
Now we are doing the same thing. There are real world tensions at this point as opposed to just posturing. What is worse, there is already an anemically weak economy that cannot take higher prices for any sustained period. Higher prices are a tax on consumers, the only economic wheel that is not flat. Higher prices further damages the manufacturing sector that cannot raise prices yet would suffer higher raw materials prices. Yet the Bush administration is following the Clinton administration with a first reaction rejecting the use of the reserve. Hey, we all know over the past few years how threats to our safety and way of life are not just military. You take out our economy and we all suffer. If a few of our refineries were blown up you would have the same economic effect as energy prices would rise. It does not have to be a military strike to be a threat to the economy. We cannot win wars on terrorism, war against Iraq, and war against North Korea without a strong economy. It is just about too late to forestall problems associated with higher energy prices. It has been an unending wave of problems facing the economy (dock strike, terror, war threats); the Bush administration has to deal with each threat with the realization the economy needs help.
THE MARKET
The continued bombardment by negative world events and their potential impact on the economy has been eroding the market, and Friday all of the indexes dipped lower yet again with the DJ30 and SP500 breaking their recent ranges and falling to the bottom of the October consolidation range. The selling has slowly gained volume though the past two sessions were ghosts of volume past.
Still, the sellers have been in control even if it is not a massive run to the exits. While many leading stocks on the report continue to hold up, some are suffering and others in the market are doing likewise. Leading stocks are the barometer of the market. As long as they are able to hold their gains, testing their moves or finishing up their patterns, the market is usually okay with some modest selling. If they crash through their breakouts in number, the market is in trouble. Again, there are leaders still moving well and holding their gains, but others such as AMZN and PIXR have started to tank. The indexes have to hold the next support that markets the bottom of the October consolidation range or it is in real trouble.
Market Sentiment
Some anxiety is creeping into the market but still well off levels that would indicate a change in the market.
VIX: 34.15; +3.07
VXN: 46.71; +1.35
Put/Call Ratio (CBOE): 0.96; +0.25. Another indication that the selling is reaching levels that could ignite a move back up.
Nasdaq
Managed to hang onto the December low that also marks the recent consolidation range, but that is about all it did as it closed at the session low.
Stats: -19.58 points (-1.43%) to close at 1348.31
Volume: 807.326M (-0.92%). Volume backed off, avoiding a distribution session. Nasdaq has undergone only three such sessions since the December peak.
Up Volume: 162M (-208M)
Down Volume: 625M (+202M)
A/D and Hi/Lo: Decliners led 1.79 to 1. Declining breadth is again creeping in as the market sells. Breadth had been sharply positive until the December peak when we saw the change start.
Previous Session: Advancers led 1.15 to 1
New Highs: 46 (-9)
New Lows: 45 (+8)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Nasdaq attempted an early move higher but was unable to even reach the 50 day MVA (1371 expo, 1380 simple) before turning over and selling. On the low (1346.65) and the close it managed to hold above the recent intraday low (1346.18) but that is small consolation. It is now riding lower below the 10 and 18 day MVA ever since it rolled over in early December. The action the past three weeks has been a small descending wedge with 1350 as the bottom. That is a bearish pattern within the head and shoulders that has formed the past two months. A failure here on some more volume opens the door to a steeper drop. 1300 is the first support. A full culmination of the pattern would be 1200 to 1250, but they do not always fully complete the sell off. For now it is holding the consolidation, but the problems of the Dow and SP500 will be an anchor on it.
S&P 500/NYSE
The large caps have tanked to the bottom of the October consolidation in a strong showing of weakness.
Stats: -14.26 points (-1.6%) to close at 875.4
NYSE Volume: 748.761M (+4.51%). Volume edged up on the session, but that was not hard to do given the half session Tuesday. The large caps have undergone some quiet distribution the past three weeks, eroding the gains.
Up Volume: 92M (-297M)
Down Volume: 657M (+347M)
A/D and Hi/Lo: Decliners led 2.11 to 1. Same problem as the Nasdaq with an erosion in the breadth undermining the move higher.
Previous Session: Advancers led 1.44 to 1
New Highs: 36 (-26)
New Lows: 24 (+7)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large cap index undercut the recent trading range, falling all the way to the next support level at 875 that marks the bottom of the October trading range. The move follows a series of lower highs as the index was unable to clear the short term moving averages (892, 897) since falling from the peak in early December. This is the critical point for the index. 875 is a point where the index has at least bounced over the past 5 months. It is very important for the move up off of the October low that it is able to hold here again and recover.
DJ30:
Also fell through the floor of the recent consolidation at 8350, coming close to the next support point at 8250 (8285 on the Friday low). As with the SP500 that level is important as it marks the bottom of the October consolidation, the first point of rest the index took on the move up off of the October low. It is also the last really significant support level though there is some at 8000. A fall to that level would take it past a 50% retracement of the move off the October low (50% is 8120), a move that would be too far to be healthy.
Stats: -128.83 points (-1.53%) to close at 8303.78
Volume: 748.761M (+4.51%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
THIS WEEK
The smaller issues did not make any moves higher Friday. Indeed most stocks were lower as the breadth indicates as the indexes sought the next support level. There has not been much change in the world or economic situation to make those hold up, but then again, markets often tend to find support when unexpected. The Dow looks very much as it did in 1974 after its double bottom appeared to lose momentum but then turned back up even as the energy crisis raged along with double digit inflation, high unemployment and other economic nightmares. At least at this point the economic numbers are showing improvement, something lacking in 1974.
In addition to the market finding footing when it seems most unlikely to do so there are a few other positives. $172 billion flowed into money market funds in November. Most of the tax selling that there was is over. The index rebalancing will be ending as well. With those pressures off the market, it may be able to handle the threat of war in the near term.
What we could very well see this week is an undercut of near support levels and then a rebound. The key will be if the indexes are able to retake the support and if the remaining leading stocks also hold onto their moves higher. The big picture still looks sound longer term but the market still has to deal with the ongoing world events near term. How the indexes perform at this support level will be key as to the economic future as we firmly believe the market forecasts economic conditions. Most economists, some very respectable, think things will be quite fine in 2003. With the right stimulus that could be the case. There are continued signs it is improving, but there are major obstacles. We will let the market tell us what the future is.
For this week we will watch how the market reacts to this support it just fell to. There are continuing downside plays with stocks that are in continuing downtrends or have broken support. If support holds the leaders that have held their ground will be in good position to pick up on a resumption of the move. One thing that we have to be is patient. With the New Year holiday Wednesday volume is likely to remain light through the week. Thus moves can be deceptive and volatile as seen this week. We need to be patient and let the moves develop as we did this week.
Support and Resistance
Nasdaq: Closed at 1348.31
Resistance: 50 day MVA (1380, simple). The 18 day MVA (1382). The August high at 1427. The 200 day MVA (1454). Price resistance at 1500. 1574, the May low, is next.
Support: July, August, and September interim highs at 1345. Some price support at 1300.
S&P 500: Closed at 875.40
Resistance: The exponential 50 day MVA (897). The simple 50 day MVA (902). 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. The September 2000/May 2001 downtrend line at 852. 850 to 855 (the October 1997 and Q2 1998 lows). The March down trendline at 829.
Dow: Closed at 8303.78
Resistance: The October high at 8500. The exponential 50 day MVA (8499); simple at 8546. 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
12-30-02
Existing home sales, November (10:00): 5.69M expected, 5.77M October.
12-31-02
Consumer confidence, December (10:00): 86.0 expected, 84.1 November.
Chicago PMI, December (10:00): 52.8 expected, 54.3 November.
1-02-03
Auto and truck sales
Initial jobless claims (8:30): 384K expected, 378K prior.
ISM Index, December (10:00): 50.2 expected, 49.2 November.
1-03-03
Construction spending, November (10:00): 0.1% expected, 0.3% October.
TEAM TRADES
CEPH: We have been tracking CEPH as it moves along the 200 day MVA, and after a low volume move up to once more try the short term MVA, it failed Thursday. Friday it was selling below the 200 day on rising volume. It hit the buy point late in the session, falling below the December low. It started a bounce up off the low with just over an hour left. With the higher volume we were going to use a bounce toward the close as an entry point; we get a better option price as the stock bounces in some relief, and we are also pretty sure of the move as we have a good snapshot of the move and the volume for the session. We liked the higher volume break below the 200 day. The options were 4.80 by 5 when we saw the bounce start. As the stock bounced the ask slid to 4.90 and that is where we put the order. The fill came and the stock, after a dip down, continued higher. The ask bounced around a bit, but we did not miss much with the earlier buy. The stock did roll over after bounding 30 cents or so, closing back near the session low. We really like these breakdowns followed by a failed test of the former support that turns over on higher voume. Lends to faster downside action.
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THE PLAYS:
Best Plays:
1) APSG: Good pattern, nice money flow.
2) ETM: Completed head and shoulders.
3) WGO: Ready for the next leg down.
4) HAR: Good 50 day MVA bounce.
5) SAFC: Very good action.
6) UNTD: Holding the 18 day MVA in a good test.
7) CEPH: Tanking beow the 200 day MVA.
8) PFGC: Tapped the 18 day MVA again and started lower.
New Plays:
Upside:
APSG (Applied Signal--$11.36; -0.23; no options): Communication equipment
http://biz.yahoo.com/p/a/apsg.html
STATUS: Cup w/handle. A bit thinner volume than usual, but a very nice pattern with solid accumulation at 7 up weeks on rising volume (accumulation weeks) to 4 down weeks on rising volume (distribution weeks). It is currently working through the handle of the base, moving laterally and slightly lower on the intraday lows as it holds above the 18 day MVA (11.16). Money flow is moving up ahead of the price as the stock moves laterally, and relative strength is breaking out. Telecom has been holding up better than most sectors, and APSG is putting the finishing touches on its base as the market sells. Again, that is a sign of strength.
Volume: 54.296K Avg Volume: 36,000
BUY POINT: $12.04 Volume=85K Target=$14.55 Stop=$11.45
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/ct/apsg.html
AVCT (Avocent--$22.09; -0.4; optionable): Computer peripherals
http://biz.yahoo.com/p/a/avct.html
STATUS: Cup w/handle. Not near a new high, but a solid pattern with accumulation at 11 accumulation weeks to just 4 distribution weeks in the base. Moreover, AVCT can give us a very nice move and lock us in a nice gain without even having to move over the high in the pattern. That is always a plus in this rather volatile market that is trying to decide what it is going to do. AVCT has formed its handle, holding above he 50 day MVA on very low volume the past week. With money flow ahead of the stock price and the support from that solid accumulation, we are looking for AVCT to bounce soon and give us that good move.
Volume: 158.708K Avg Volume: 570K
BUY POINT: $23.08 Volume=750K Target=$27 Stop=$21.46
POSITION: QVX ED - May $20c (68 delta) and/or Stock
http://www.investmenthouse.com/ct/avct.html
Downside:
ETM (Entercom Communications--$45.87; -1.53; optionable): Radio broadcasting
http://biz.yahoo.com/p/e/etm.html
STATUS: Head & shoulders. ETM is completing the pattern, breaking below the neckline Friday after trying to hold the line with a weak rally attempt up to that point. The breakdown also concided with a weak test of the 10 day MVA Thursday. The breakdown sets up the move lower to the target. One thing to remember. Just as with upside moves, stocks rarley move in a straight line and hit the target on the same move. Thus we will see ETM fall then try to rally, then fall some more. That is normal action.
Volume: 184.6K Avg Volume: 350K
BUY POINT: $45.75 Volume=325K Target=$42 Stop=$46.78
POSITION: ETM OJ - Mar. $50p (-66 delta) or ETM OI - Mar. $45p (-41 delta)
http://www.investmenthouse.com/ct/etm.html
MLHR (Herman Miller--$18.15; -0.26; optionable): Business equipment
http://biz.yahoo.com/p/m/mlhr.html
STATUS: 50 day MVA breach. MLHR fell below the 50 day MVA (18.80) four sessions back. This move followed a double test of the 200 day MVA (19.92) in December that failed. After breaking the 50 day, MLHR tested it on Thursday's high, and then fell further Friday. There is some support at 18, and we are looking for MLHR to break that level before entering and then letting it work lower for us as it stair-steps down the short term MVA.
Volume: 165.959K Avg Volume: 435K
BUY POINT: $17.94 Volume=425K Target=$15.85 Stop=$19.05
POSITION: MHQ ND - Feb. $20p (-73 delta, low OI)
http://www.investmenthouse.com/ct/mlhr.html
WGO (Winnebago--$40; -0.72; optionable): Motor homes
http://biz.yahoo.com/p/w/wgo.html
STATUS: Testing breakdown. WGO has faced a reversal of fortunes, crashing below the 200 day MVA a week ago (43.13) and spending the rest of the move trying to hold on at 40. This lateral move does not show much strength, and we look for WGO to fall from here to the next support level at 36 for a nice gain.
Volume: 153K Avg Volume: 295K
BUY POINT: $39.49 Volume=270K Target=$36 Stop=$41
POSITION: WGO NI - Feb. $45p (-46 delta, low OI)
http://www.investmenthouse.com/ct/wgo.html
End Part 1 of 2
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world stock market
us stock market
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