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world stock market, us stock market
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2/20/03 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Thursday: Still letting GRMN make its run.
Buy alerts issued: CCMP; EV
Trailing stops issued: None issued
Stop alerts issued: AVO; FON (took the $ off the table as not falling)
You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- Selling intensifies some as downtrend tries to reassert its presence.
- Business prices rise along with jobless claims.
- SP500, DJ30 slide through 10 day MVA on rising volume, but Nasdaq holds the line as volume ramps up.
- Subscriber Questions
Volume rises on some rather mild selling.
Once again the markets slipped lower, and again the selling was not particularly strong. Volume did increase as the indexes slid lower with the SP500 and DJ30 falling below their 10 day MVA. Nasdaq managed to hold above its 18 day MVA on the low, however, minimizing losses on the back of the semiconductor index that managed a gain after its second consecutive upgrade. That kept the techs in the leadership role, holding the line on some stronger volume.
Nasdaq remained the leader, but the other large cap indexes were not falling in line with it on a day where some significantly worse economic reports were released. They have the look of continuing the downtrend: stalling at the 18 day MVA and rolling lower on rising volume. The selling was not broad, however, with NYSE breadth just slightly negative. That indicates some big names were falling back but not most stocks in general. Thus the downtrend is trying to assert itself, but tech stocks are resisting with just a slight majority of stocks finishing lower.
THE ECONOMY
Producer prices jump 1.6%, a 13-year record, as commodities price increases start taking their toll.
Higher commodity prices finally worked into the prices producers pay for raw goods, driving business costs well beyond the 0.5% gain expected. Take out food and energy and the core was still a much stronger +0.9% versus the 0.1% gain expected. No question oil prices have impacted prices, but the core is evidence that businesses are being pinched. Thus far they have been unable to pass that rise on to consumers, but we doubt that will continue for long. It may not show up in the January Consumer Price Index, but it could start edging higher in coming months.
That opens the door to some possible inflation. Now the economy has been on the verge of deflation and thus the thought of slight inflation is not a bad one. Strong economies tend to slightly inflate. Their ability to grow without that inflation getting out of hand depends upon how free the market is. If the market is allowed to work and self adjust to the various stresses that arise, inflation will take care of itself. In other words, if businesses are not overly restricted (and bear in mind that most businesses in the U.S. are small businesses with less than 50 employees) and consumers are allowed to consume, money will flow where it needs to flow to alleviate shortages and thus prevent price spiking in the majority of economic sectors.
Will inflation turn nasty as in the 1970's? It is a long way from that, but there is concern the rising commodities prices signal long term economic stagnation that was seen in those years. Commodity prices surged in a bull market while unemployment was high and business activity was low. Prices climbed higher and higher (interest rates at 18%) even as the jobless ranks grew and businesses shrank. Economists did not know what to do, and they managed to do all the wrong things
The move up in commodities has been strong, but in a relative sense they are still fairly low. They were abnormally depressed in the late 1990's. At that time we wrote about how grains, fibers, and other commodities were at historic lows even as drought raged across much of the U.S. and other parts of the world. One side of the economy, technology, was racing ahead on the back of an overgenerous money supply while commodity prices were depressed even against an environment where they should have been rising: drought, extremely robust business activity, extremely robust consumer consumption. These are the very imbalances we alluded to above, and they were caused in large part by a misallocation of funds through the Fed's use of the money supply and decades of governmental subsidies and controls that had skewed the commodities market and thus wrought havoc on them when those controls were loosened and subsidies were reduced.
Now commodities are picking themselves up from the bottom of the pit so to speak, and reacting to (actually anticipating) some signs of economic recovery in the U.S. as well as global tensions. That said, they are now at their 1996-1997 range, just below the 1996 spike higher that marks the high for the past decade. Historically they are showing anticipated economic improvement and are not currently disproportionate. If there is a strong surge in economic activity from the current depressed levels, however, these economically sensitive goods may see a sharp increase. If that is sustained then there would be upward pricing pressure and more inflationary bias.
Jobless claims jump to 402K, crossing back into the 'recession' zone.
385K were expected, but as we wrote last week, the continued layoff announcements (MU and Reuters just Wednesday and not even on the reports yet) and lack of substantial economic improvement continues to pressure the job market. Each week the change is within the statistical margin of error, and the improvement seen during the post-holiday adjustment period was largely a numbers and accounting difference. The 4-week average jumped to 394,750, close enough to show that there is no real improvement.
Trade gap jumps 10.6% to $44.2B. Bad, good, does it matter?
Exports fell, imports rose and there are those who continue to say this is a bad thing. What it does is decrease the GDP figures as imports are subtracted. That, however, is really only a numbers or a shell game. Others claim that it hurts U.S. businesses when they lose out to foreign goods. Much of the number, however, reflects goods that are manufactured by U.S. companies overseas because of the cheaper labor they need to stay competitive given, among other things, the more favorable treatment foreign corporations receive from their governments on overseas earnings versus U.S. corporations and their tax treatment at home.
It also shows the fallacy of those arguing that a weaker dollar will automatically help U.S. industry. The dollar has been on a slide for months, but it certainly is not showing up in the trade balance. Why not? So simple it appears basic: if the dollar is weaker, because of the US' world status, that usually means the US economy is weaker. As the US economy goes, so goes the world (with the exception of China as it is the emerging powerhouse). So if the dollar is lower because the US economy is lower, other world economies will be lower as well. That means no foreigners are lining up to buy our products because their economy is also bad. All a weak dollar does is cause divestiture of U.S. assets held by foreigners, and that depresses stock prices. All of those dollars coming home is also another source of potential inflation. Some inflation here, a little there, and some more over yonder, and the next thing you know, those little pieces add up to a problem.
Philly Fed tanks.
Following the lead of the New York regional manufacturing index, the mid-Atlantic index plunged in February to 2.3 from an 11.2 reading in January. Expectations were for 11.0. Not many are talking about the current slowdown, but it is real as we have been discussing the past few weeks. Again, these regional PMI numbers are basically sentiment surveys, and they can change quickly when the skies brighten. It is significant, however, that they have turned lower in the near term.
In short, the U.S. needs to do what it can to grow the economy. A strong economy takes care of the problems associated with a weaker dollar, deficits, a trade gap. That is much easier to do than to tackle each individual problem; they are so bound up together that one impacts the other in an unforeseen way and you end up with the usual problems associated with government intervention: unforeseen consequences that exacerbate the existing problem.
THE MARKET
Rising volume on the selling, but it was still quite low volume in the bigger picture. Nasdaq held up, and though the DJ30 and SP500 slid lower for the second consecutive session, they held up remarkably well given the rather hefty load of poor economic news. Technically it was a distribution session, and unlike Wednesday, a late session rally attempt failed with the indexes falling back near session lows with a late thud. With buyers supporting Nasdaq at the 18 day MVA, the higher volume large cap slide is not as bad as it seems at first blush. It is not a strong endorsement of the rally attempt, but it is not the kiss of death. The big question is whether Nasdaq leads the market or the other indexes control the action. Despite the index losses Thursday, the internals show a standoff though that last half hour action to the downside was important.
Market Sentiment
VIX: 35.67; +0.45
VXN: 48.56; +0.93
Volatility continues to languish at relatively low levels, indicating a general lack of anxiety to drive the market higher. It is more akin to apathy and a wait and see attitude (following Greenspan's lead).
Put/Call Ratio (CBOE): 0.86; -0.01. Really not indicating much as it fell on a session that was down more than previous sessions.
Nasdaq
Held up well, holding the 18 day MVA in a tight range on higher volume.
Stats: -3.09 points (-0.23%) to close at 1331.23
Volume: 1.338B (+12.39%). Pretty significant jump in volume, but still below average. The higher volume when an index compresses against a support level is actually a good sign. It shows that buyers are buying stocks as fast as they are being sold, and that holds the index over the support level.
Up Volume: 638M (+276M)
Down Volume: 673M (-142M)
A/D and Hi/Lo: Advancers led 1.02 to 1.
Previous Session: Decliners led 1.62 to 1
New Highs: 58 (+14)
New Lows: 76 (+10)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Nasdaq has been the relative strength leader in the move up, and it is also holding up the best on the pullback. It has been helped by back-to-back semiconductor sector upgrades. Indeed, the SOX was the lone positive large index Thursday, and its stocks are showing some improving patterns. They have helped Nasdaq hold the 18 day MVA (1324) the past two sessions. It ran into the exponential 50 day MVA (1348), but that has not sent it scurrying back down. That price/volume action discussed above shows how there is some buying at this level that is making Nasdaq stingy with its gains.
S&P 500/NYSE
Tried to move over the 18 day MVA, but rolled over and slipped below the 10 day MVA to close as volume edged higher.
Stats: -8.03 points (-0.95%) to close at 837.1
NYSE Volume: 1.177B (+10.48%). Rising volume as the index started lower, though still well below average.
Up Volume: 386M (+65M)
Down Volume: 759M (+20M)
A/D and Hi/Lo: Decliners led 1.14 to 1. No breadth on the selling, indicating the selling was concentrated in those large caps that are the most influential regarding index moves.
Previous Session: Decliners led 1.61 to 1
New Highs: 24 (-5)
New Lows: 62 (+11)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The chart looks very much like a test of the 18 day MVA (847) in a downtrend and then starting back down on rising volume. Unlike Wednesday, the 10 day MVA (839) did not bounce the index up. That is definitely the easier scenario to believe given the overall market trend. Nasdaq could provide the anchor to arrest the large cap move lower, but would it would most likely help a lateral move to consolidate some and build some better foundation as opposed to a big near term bounce. As it is, 850 to 860 remains some pretty serious resistance, and the last half hour was not a bullish picture.
DJ30:
The blue chips also moved over the 18 day MVA (8012) on the intraday high but then rolled back over as Dow volume rose to near average levels. The DJ-30 is populated by large caps (large ones), and those are the names that were selling the most Thursday. As with SP-500 the chart looks like the continuation of the downtrend as the near resistance level at 8000 to 8150 has turned it over on rising volume. But for Nasdaq's relative strength this would be a clearer signal the selling was ready to resume.
Stats: -85.64 points (-1.07%) to close at 7914.96
Volume: 1.177B (+10.48%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
FRIDAY
Before the open consumer prices are released and we will see if the higher producer prices turn up there. We don't expect an appreciable rise, but over the next few months that could most certainly be the case unless the economy nosedives; the latter is of course the scenario no one wants.
The market did not give the Thursday economic data too much credence, and we don't expect it to give much to the CPI. Volume has been lower this week after the higher volume move up Friday. Lower overall volume on the move up and then a return of higher volume on selling are classic signs of a return to the downtrend. But for Nasdaq showing some relative strength and holding its near support it would be a no-brainer the downtrend was resuming.
Some semiconductor stocks are trying to start forming 'building patterns' and some are breaking higher over near term resistance on the two sessions of upgrades. While the strength of the moves vary, some have been on very solid volume. The SOX itself closed just below the exponential 50 day MVA (293), falling back below that level on the close after testing close to the simple 50 day MVA (298) early and late before falling back. Its action with respect to the 50 day MVA will have a strong bearing on Nasdaq's ability to hold the 18 day MVA and continue its move.
In sum, the market is not tremendously oversold after this bounce to test near resistance. The semiconductor stocks are trying to lead the market higher with some nice individual moves, but the SOX is right at the 50 day MVA and its recent down trendline now at 300. The techs are trying to change their character, but there is a lot of resistance to overcome in the continuing downtrend. With the softer overall action we have been willing to let positions ride as long as they remain in their trends. As noted Wednesday, Nasdaq is trying to make a stand, but the monkey is still on the bulls' backs.
Support and Resistance
Nasdaq: Closed at 1331.23
Resistance: July, August, and September interim highs at 1345. Exponential 50 day MVA (1349) and simple 50 day MVA (1362). 1357, the 1998 bear market low.
Support: The 18 day MVA (1324). The 10 day MVA at 1317 and price support at 1300. 1250 after that is another point where some lows have held.
S&P 500: Closed at 837.10
Resistance: The 18 day MVA (847). Price resistance at 850 to 860. The bottom of the October consolidation range at 875. The exponential 50 day MVA (870).
Support: The 10 day MVA (839) is still not totally broken. The September 2000/May 2001 downtrend line at 811. After that 800.
Dow: Closed at 7914.96
Resistance: 8000 and the 18 day MVA (8012). A range of resistance here at 8000 to 8150 from the late January lateral move. Then 8250, the bottom of the October consolidation range.
Support: The 10 day MVA (7940) is still in the realm. Soft support at 7750, then 7500.
Economic Calendar
2-19-03
Housing starts, January (8:30): +0.2% (1.850M), actual, 1.775M expected, 1.835M December
Building permits, January (8:30): -5.6% (1.781M) actual, 1.800M expected, 1.887M December
2-20-03
Initial jobless claims (8:30): 402K actual, 386K expected, 381K prior (revised from 377K)
PPI, January (8:30): 1.6% actual, 0.5% expected, -0.1% prior (revised from 0.0%).
Core PPI: 0.9% actual, 0.1% expected, -0.5% prior (revised from -0.4%)
Leading economic indicators, January (10:00): -0.1% actual, 0.0% expected, 0.2% prior (revised from 0.1%)
Philly Fed, February (12:00): 2.3 actual, 11.0 expected, 11.2 prior.
2-21-03
CPI, January (8:30): 0.3% expected, 0.1% prior.
Core CPI: 0.2% expected, 0.1% prior.
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End Part 1 of 2
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