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12/31/02 Technical Traders Report
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Technical Traders Report Subscribers:
HAPPY NEW YEAR!!
MARKET ALERTS
Targets hit alerts issued Tuesday: None issued
Buy alerts issued: SINA; WCN; AMTD
Trailing stops issued: PCLE
Stop alerts issued: IBM; MSFT
You can sign up for Technical Trader alerts at the following link:
http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- Market up, market down? Our goal is to take what the market is giving.
- Economic news not giving market much to stand on.
- Small caps try to lead the way.
Markets close out the year down again.
We are not going into the litany of factual horrors that transfixed the financial stations today. It is enough to say the year started in the existing downtrend, it got worse, it bottomed, rallied, and is now trying to salvage the rally. It was bumpy and it was easy. It has been a market of trends. When the trends were established the money was easy. Many subscribers termed the downside we feasted on as a 'bull market in reverse'. The rally from October to November was another feast in chips and other technology, more of a bull market in forward gear. In between it has been a very, very tough market. Many old timers are having to think back pretty far and pretty hard to recall a time where trading in between the trends was so difficult.
Everyone is looking to 2003 as a recovery year. It may be, it may not be. Many of those saying it will be better are looking at the odds of 4 years down. Well, the economy will have to do a lot better for the market to improve as it priced in a decent recovery as it moved off the October low. With the right stimulus and no protracted military actions, the economy can do quite well. Business demand has been pent up for three years. Those saying there can be no surge in demand forget that this part of the economy has slumbered for three years. With the right incentives that sleeping giant known as American drive and ingenuity can roar to life and take the economy with it.
What do we think? We lean toward the recovery model given the liquidity the Fed is providing and the promise of fiscal stimulus. In any event, however, we have to refocus and rededicate ourselves to the idea that regardless of the market moving up or moving down, we are there not to cheerlead one cause or the other but to take advantage of what the market is doing. Take what the market is giving. That can be to the upside or it can be to the downside. To us it should only matter that we see the trend and take advantage of it to our gain. Thus we need to keep reading, keep educating ourselves, and then take advantage of what that knowledge reveals to us in the market.
Consumer confidence sags near term, still optimistic ahead.
The market has been limping along, trying to overcome the geopolitical headwinds. It has done a pretty amazing job of fighting off the urge to sell, mainly because of the underpinnings of an economic recovery currently underway. This was underscored in the December confidence reading as measured by the Conference Board. Current conditions dropped 8 points, coming in at 69.9, a very weak showing without a doubt. Expectations, i.e., the view 6 months down the road, however, remained rather steadfast at 87.2, down from 89.3 in November. Consumers still believe a recovery is coming, and opined they were going to buy cars, homes, and other large ticket items over the next six months.
The market and confidence are somewhat mirror reflections of one another: looking weak near term, but refusing to give in. The promise of growth remains just around the corner with high liquidity thanks to the Fed and the lure of fiscal stimulus thanks to the administration and Congress. The common belief is that 2003 should be able to deliver growth given all the stimulus. It should, but then it also has to overcome the built in obstacles of a post-bubble economy (the ramifications of which many do not seem able or willing to grasp) and the threat of war from any number of world hotspots. The promise of greatness is there, but that is what we all said about Nixon and Clinton. It is the delivery that counts, and the market is looking for delivery in the first half of '03.
THE MARKET
The large caps held support. That is about all you can say. They did not break over resistance, they did not present stellar moves. The small and mid-caps looked ready to take the chalice and run, starting the 'January effect' rally a day early. The sellers had the last laugh of the year, however, as the nice 1.3% gain in the SP600 melted away to a meager 0.3% rise. It looked like the small caps were starting to run, but the end result was at best questionable. Should have, could have, would have; that is the motto of the market in 2002.
Maybe the large cap indexes are oversold enough to try a further bounce. Tuesday would have been the day to do it and they were in fact rallying before the late selling took them off the highs. They all showed doji's on the candlestick charts, and that can indicate a move higher coming after some selling. Too early to call; doji's almost always need confirmation to show their worth. There was another day where support was tested and held. Question now is whether they can mount a move higher when the rest of the market gets back to business later in the week and particularly next week. There is a lot of work to be done if the indexes are going to mount an upside move.
Market Sentiment
VIX: 32.03; -0.53
VXN: 46.94; +0.45
Put/Call Ratio (CBOE): 0.65; -0.07
Nasdaq
Another down session on rising volume, but it may try a bounce up to 1355 or so, a point it has to clear of face further downside.
Stats: -4.03 points (-0.3%) to close at 1335.51
Volume: 1.17B (+10.75%)
Up Volume: 605M (+367M)
Down Volume: 537M (-256M)
A/D and Hi/Lo: Advancers led 1.39 to 1
Previous Session: Decliners led 1.56 to 1
New Highs: 58 (+10)
New Lows: 58 (0)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Slid lower again, further solidifying its break below the 1998 bear market low at 1357. Once again it sold on rising volume, though it was still well below average. The candlestick pattern showed a doji, an indication that the index may try to move back up after a week of selling. It is not a lock, however; doji's signal a potential change in momentum, and their best indication is when they occur right above support after some selling (or just below resistance on a move higher). They show momentum is changing, but you have to see the actual move. Thus, the Friday doji may not mean much; a move up to test the breakdown may be all it delivers in the current market climate.
S&P 500/NYSE
The large caps showed more resilience, testing lower again but holding support at 875 on rising volume. Interesting to say the least.
Stats: +0.43 points (+0.05%) to close at 879.82
NYSE Volume: 1.077B (+3.86%)
Up Volume: 643M (+56M)
Down Volume: 407M (-20M)
A/D and Hi/Lo: Advancers led 1.74 to 1
Previous Session: Advancers led 1.3 to 1
New Highs: 51 (+3)
New Lows: 21 (-11)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Managed another comeback gain (though modest) on some rising volume. SP500 tapped 869 on the low again and rebounded to hold support at 875. This is the kind of resilience that it has to have, but it does not mean it is the kind of resilience that will propel it higher. Kind of the old necessary but not sufficient theme. After the selling, this kind of action could deliver a move up to near 900 (the 50 day MVA's are at 896 and 901). That is not a strong endorsement, but the large caps have dug themselves into a hole. A failure here opens it down to 850.
DJ30:
Very similar to the SP500, the blue chips held 8250 once again and rebounded for a slight gain. This again staved off a breakdown from the head and shoulders pattern and sets up a move toward 8500 (the 50 day MVA's at 8486; 8547 simple). That will get it back to its next resistance and keep it from the next step down that would put it near 8000.
Stats: +8.78 points (+0.11%) to close at 8341.63
Volume: 1.077B (+3.86%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
THURSDAY
The ISM hits at 10ET, the measure of national manufacturing. Chicago was lower than expected, and that has economists somewhat itchy about what the national number will show. It will be doing well to make it back over 50 after coming in at 49.2 in November.
Tuesday showed an inkling of what might be to come in January, i.e., some life in small cap stocks. Remember, small caps were the leaders up through summer 2002. They may indeed reassert themselves to start 2003. The breadth Tuesday was indicative of smaller issue leadership, and up until the last half hour small caps sported a 1+% gain. We will be watching these in the coming sessions. We will also be watching the large caps as they move up toward resistance; if the volume is low and they fail at resistance, they will be set up for more selling ahead.
Support and Resistance
Nasdaq: Closed at 1335.51
Resistance: July, August, and September interim highs at 1345. 1357, the 1998 bear market low. 50 day MVA (1368 exponential; 1382 simple). The 18 day MVA (1373). The August high at 1427. The 200 day MVA (1448). Price resistance at 1500. 1574, the May low, is next.
Support: Some price support at 1300. 1250 is the next price support after that.
S&P 500: Closed at 879.82
Resistance: The exponential 50 day MVA (896). 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 850. 850 to 855 (the October 1997 and Q2 1998 lows). The March down trendline at 825.
Dow: Closed at 8341.63
Resistance: The 10 day MVA (8417) may provide resistance. The October high at 8500. The exponential 50 day MVA (8486); simple at 8547. 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): -3.5% (5.56M actual), 5.69M expected, 5.77M October.
Chicago PMI, December (10:00): 51.3 actual, 53.0 expected, 54.3 November.
12-31-02
Consumer confidence, December (10:00): 80.3 actual, 86.0 expected, 84.1 November.
1-02-03
Auto and truck sales
Initial jobless claims (8:30): 382K expected, 378K prior.
ISM Index, December (10:00): 50.1 expected, 49.2 November.
1-03-03
Construction spending, November (10:00): 0.1% expected, 0.3% October.
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