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us stock market, trend trading stock
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3/31/01 Technical Traders Report
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Technical Traders Subscribers:
TONIGHT:
- Web Seminars
- Major indexes rise on stronger volume. Looks decent technically, but was it just quarter end jockeying?
- Semiconductors have a bad day, stealing the heart of the rally.
- Earnings season dead ahead. We know it will be bad, but can investors handle harsh reality?
- Mid-west manufacturing in a recession, but consumers appear to feel better.
- Subscriber Questions.
- Team Trades.
INVESTMENT HOUSE ONLINE SEMINARS
INVESTMENT HOUSE ONLINE SEMINARS
Another week that produced both excitement and gloom in the media, but for the Investment House investor it was just another chance to make money whatever the market gave. This week presented opportunities for upside and downside plays for both the trend traders and the day trader. We saw breakouts from many upside plays such as RESP, ADVP, ESXM, ALLY, APPB, CPN and THQI, to name a few. The pre-splits were popping again with GVA, MBI and RMCI showing us strong moves. The downside was not bad either with CHKP, VRTS, FLEX, QQQ, OEX and others giving good downside profits.
Even in a bear market there are stocks breaking out to the upside as other stocks break down further. At Investment House, we scour the market to locate the best plays for you, but reading the report is only part of what you can do. The keys to success in anything, especially the stock market, are knowledge and the ability to apply that knowledge correctly. We want you to know more, to learn how we find plays, and to know how to act and react when the play unfolds. While
our expert analysts will always check out the entire market for you to find the best patterns, run the fundamental numbers on each play, set up the breakout/breakdown points, and find the best positions to take (stock, options, spreads, etc.), the CONFIDENCE you have when you understand why we say what we say will make you a tremendously more EFFECTIVE and SUCCESSFUL investor.
You are already ahead of the pack because you are still in the game even when a bear market has raged for over a year. You have recognized the importance of the market to your financial independence and the need to take charge of your financial life.
It is now time for the next step. Learn the skills and strategies that we use to make a living in the market. Learn how to take full charge of your financial life with superior knowledge. The Investment House seminars will show you in detail the technical indicators we use, in an understandable format that tells you:
-why each indicator is important
-what is the investor psychology behind them
-what to look for based on what the indicators tell you
-what are the long term and short term implications
-what action you should take based on the indicators and the circumstances.
On top of that, we provide real-life examples of what we are teaching so you can see how it happens in the real world, not just in theory.
Confidently and decisively, you will know when to stay the course or when to make your exit. When you are finished, you then look for that next winner. No more 'should of, would of, could of.' With confidence brought about by superior knowledge, you don't worry about the past but focus on the opportunities of the future. That is a key difference between successful investors and the rest of the crowd.
For more details and to sign up:
http://www.investmenthouse.com/signup1.htm
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THE SUMMARY
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The Major Indexes Continue Their Rallies.
All three of the majors tapped at support and then rallied on the session to close higher on stronger, above average volume. This is the kind of action you like to see: a soft open that tests support and then fights off some selling attempts to close positive. Moreover, as the indexes held above recent lows on Friday's test of support (the Nasdaq by the skin of its teeth), the rally that started last week is still in play.
So why are we not jumping up and down with excitement? Before we get into that, we have to say that the numbers were solid, and we have to recognize them for what they are, i.e., an indication that institutions where back in on the buy side on Friday after some above average volume selling. This may indicate a further rally to come; it has definitely set the stage for how most rallies of greater significance begin, though it was not a thundering confirmation.
Distribution, Semiconductor Selling, and Earnings Troubles Ahead.
We still had those two quick distribution days after the Nasdaq's confirmation that concern us. That shows there are still plenty of institutions out there ready to sell into strength. The fact that it recovered on Friday on higher volume right after the selling and before it broke to a new low was very encouraging, but was there something else causing that?
Friday was the end of the first quarter. It was a bad quarter for a lot of fund managers, but there were winners and losers in every portfolio. They want their quarterly statements to be populated with winners for the quarter. So, they were selling on Wednesday and Thursday, and buying new names on Friday to bolster that lineup they were about to send out to investors: "Look, Calpine is up 83% from its low this year." Of course, they won't explain why they did not capture anything but the last three points of the move. Is there any wonder why all of the sudden energy stocks, after looking as if they were ready to roll over and die, all of the sudden jumped up on Friday? How about regional banks, utilities, and insurers? They have all performed well this year until lately, and there was buying late in the week to put them back into the portfolios while weeding out the less than stellar performers. Hence the higher volumes.
The semiconductors also had a rough Friday, with the SOX testing 535 on the low and several key chips (outside of the beleaguered telecom chip sector) falling on heavier volume, e.g., AMAT, MU, AMD, KLAC, NVLS. MU checked up at its 50 day MVA on higher volume, so that is a sign institutions were stepping in to support it after its decent earnings report. Others such as KLAC and NVLS broke below their 50 day MVA's while AMAT continued its breach of its 50 day MVA. We have said that the semiconductors hold the key for the Nasdaq because they most frequently assume the leadership role, and they have been in the best patterns as far as a leading group is concerned. We like the fact that the SOX hit support and bounced up to close, but the heavier volume selling on the individual stocks is not promising. Perhaps they too were victims of the portfolio reshuffling in the last two days of the week, being dropped in favor of bigger gainers for the year. That remains to be seen, but we don't believe that was the sole cause of the drop.
This week we will start hearing some more true confessions before more companies head into their quiet periods before earnings are announced later in the month. The software companies who don't know about their quarters until the last few weeks are a likely candidate for some negative news, but it could be spread across many sectors as we have seen the likes of IP warn recently. Also, this is the last Monday before earnings start in earnest that analysts can come out and issue their proclamations about how bad earnings are going to be.
Let's face it; the market is still on shaky ground and is thus pushed and pulled by each news story out there. Friday there were no negative stories for a change and the market was able to shake off early weakness and rally once it realized no one was going to gut-punch it on the session. It ahs been unable to absorb bad news of late, and Friday's move up may just be setting it up for more selling this week if some bad news hits. If we do get some serious selling this week we may just get all of the bad news factored in and allow for a rally higher when earnings start coming in about as expected. In other words, investors will be ready to say "that was not that bad" if stocks have already been pummeled heading into earnings. The worst thing in our view would be for a false hope rally into earnings that just opens the floodgates for selling when some investor favorite inevitably misses its numbers by more than expected. If the selling comes first, the bad news will be priced in, and then some chance for gains. Otherwise, get ready for some fast and furious downside action when the disappointment comes.
Either way, the market needs to have some rally that lasts more than three sessions. It needs a 2 to 3 week rally that then fails and scares the last sellers out, clearing the way for stocks to rise unhindered by waves of sellers. Overhead supply has been built at several levels with ready sellers. The market needs to rally with some vigor and rise high enough to get those sellers to finally let go of their shares and then to have the rest dump them when they see the rally stalling; kind of a rush to get out on the first good rally they have seen in a long time before it ends. It could unfold with a continued move up here or it could wait until after some more selling here and a move up on earnings. We will have to watch how the indexes react to the resistance levels that are right overhead on the Dow and S&P 500 as to more of a clue as to when the move will come. Short term we may see more selling if we get more bad news this week.
THE ECONOMY
Spending rises, but less than January. Income rises as well.
Consumer spending rose 0.3% in February after a 1% gain in January (revised higher from 0.7%). Clearly there was slowing consumption, but it was not a decline. Personal income rose 0.4% from a previous 0.5% gain. Both numbers were in line with expectations. Thus it appears that consumers were taking advantage of post-holiday sales in January, but they did not completely bottle up spending in February.
Consumer confidence rose to 91.5, above expectations and higher than the 90.6 in February (revised down from 91.8). This adds support to the previous report released by the Consumer Confidence Board last Tuesday. It is not out and out happiness; the importance, however, is that confidence is not sliding down with the stock market.
Manufacturing, however, at least in the mid-West, is in a recession as the Chicago PMI came in at 35 versus expectations of 44 and a 43.2 reading in February. That is the lowest level for this indicator since March 1982, and it does not bode well for this week's NAPM report. Manufacturing led the slide lower, and if the Chicago report continues to accurately predict overall manufacturing activity, expect a sizeable slowdown once again. That would mean that manufacturing is without a doubt in recession, and the bottoming that many were hoping for is still not taking place yet. On the other hand, the New York NAPM rose 4.1% in March, the biggest rise since June 1999 when the Fed started raising rates.
On the other hand, money supply continues to expand as the Fed pumps more and more liquidity into the system. It is not just rate cuts; there has to be money out there as well. The Fed is doing that. With the stabilizing consumer confidence and the influx of money, fortunately commodities are continuing to fall and the dollar is remaining strong. That keeps down the risk of inflation that could otherwise be a threat with all of this money in the system. The situation the economy has to avoid is no recovery in manufacturing and no investment in capital goods by industry while consumers continue to buy and buy. That will lead to tight supplies and inflation. That is why it is so critical that business be given incentive to go ahead and invest in the future, i.e., in production and productivity enhancing equipment, in order to keep supply meeting demand. The way to do that: meaningful tax cuts that provide incentive to invest in your business. With lower marginal rates and lower capital gains taxes, business have the incentive and get the money to invest in business to meet demand as the economy pulls out of the dumpster. Supply has to be ready to meet demand, and tax cuts are the next step.
THE MARKETS
Overall market stats:
VIX: 33.82; -0.01. Volatility continued to hold steady and easily above 30 (considered the higher end of the scale) even as the Dow and S&P rose. Again, we like to see the volatility hold up even as the indexes move higher as it shows continued worry and anxiety.
VXN: 71.13; -1.09. The Nasdaq volatility index slid on the session's gains, but nothing dramatic. It never did reach even the recent highs of 77 to 78 that triggered the last rallies before it started to climb this time around. Friday's intraday high was 74.70, well off the previous highs that started previous rallies. Something to watch, but we are still feeling our way around with this new indicator.
Put/Call ratio (CBOE): 0.76; -0.15. Does not take much buying to turn the put/call ratio markedly lower. Friday's reading after Thursday's 0.91 reading tends to confirm our suspicions Thursday night that the action that day involved some short covering. Total volume was very low, not even cracking 1 million (913,412). That is a further indication to us that the volume Wednesday was related to mutual fund reshuffling: if there was across the board excitement, there would have been more option activity.
NASDAQ: Again the rally is still technically in play as the Nasdaq bounced off its recent low and logged a gain on rising volume. That is the type of building strength in a session you like to see. If the semiconductors had been involved in the action we sure would be feeling better about the move.
Stats: Up 19.69 points (+1.1%) to close at 1840.26.
Volume: 2.138 billion shares (+2.9%). Up volume rose sharply to 1.119 billion shares while down volume dropped back to 782 million with 236 million unchanged.
A/D and Hi/Lo: Advancing issues moved back ahead 1.68 to 1. Not stellar, but they have not been able to really give us the strong lead needed on a reversal and follow through. New highs rose to 68 (+24) while new lows fell to 221 (-41).
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq once again found support just below the 1800 level, tapping 1794.30 on its low (1794.21 was hit on 3-22). Again it bounced just as it did Thursday after tapping down at 1802. This is a continued indication that the Nasdaq is trying to hold on for some type of move at this level. Looking at a 5-day chart, the index sold last week on lower volume than the previous two weeks. As you know, lower volume selling is the best kind of selling. It appears to be trading in a range between 1800 and 2000, and the recent testing of 1800 implies an attempt to move back up to 2000 or the 18 day MVA at 1962.69. If that is the trading range it develops, what a great trade on the QQQ, the NDX, or the MNX.
Conflicting with that is the sudden weakening once again of the semiconductor sector, the one group that has shown relative strength in the tech index and has risen this year. Its stocks sport some of the better patterns of the tech sector as a group (not saying a whole lot), yet it was sold Friday with many of its components dropping on heavier volume. Additionally, some big names failed to take part in any upside Friday or did so on anemic volume (e.g., Dell, Cisco, JDSU, JNPR). On top of that, several big names moved to new low territory just before Friday's move, and in the past those moves have foreshadowed moves lower.
In short, the Nasdaq is in a giant tug of war right now between trying hard to bounce higher, but having to drag the anchor of many old leaders that are heading down faster than up. More bad news early next week and we feel it could be in for more selling. If Friday was just portfolio shuffling, it should be evident after a brief attempt at bouncing higher. The Nasdaq needs a sustained rally up to 2200 or so and it is trying to put in the base to start the move. If it can weather some negative news on Monday and rally the rest of the week, we could get the bear market rally we need ahead of some lower than expected earnings that could push it back down to retest the lows and then shake out the last sellers. That is what the 1973-1974 bear market did to finally put an end to the selling, and the Nasdaq looks ready to give it a try if it can get out of the blocks. Right now we are not confident it will do this on Monday, but we think it will happen at some point during this earnings season.
End Part 1 of 3
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