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3/05/03 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: None issued
Buy alerts issued: MVL
Trailing stops issued: None issued
Stop alerts issued: None issued
You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- Market bounces were it had to, fighting off Powell war deadline.
- Services still expanding but no rush higher as economy remains slack.
- Business survey shows lack of activity in anticipation of war.
- Rising volume bounce, but it was covering as large caps that sold down led the move up.
It took some doing, but indexes manage a bounce.
Typical with this market the indexes bounced back up from testing support (the Nasdaq did the actual test while SP500, DJ30 had already undercut). Also typical of this market, stocks went every which way in the process, testing negative, positive, and then negative before a final push higher.
The market had to deal with the daily barrage of geopolitical news. The new triumvirate of France, Germany & Russia (my what strange historical bedfellows, now bound by the common interest in Iraqi oil; and they say the U.S. is in it for oil) gathered before the cameras to solemnly announce they would block the proposed US/UK/Spanish resolution to use force. Because Iraq has recently feigned compliance by destroying a few missiles they feel inspections will do the trick. UN inspector Blix then came out and said he was not in favor of indefinite inspections but that Iraq was being more 'proactive' in its approach to the inspectors.
Powell trumped them all with a clear statement. He talked of the need to disarm Hussein and the need for a free Iraq. In short, an Iraq without Hussein. He talked as if this was going to happen. He said the U.S. now had further evidence that Hussein had illegal weapons and was also moving around the construction facilities. He said Iraq had blown its last chance to disarm. Powell then clearly stated that Hussein had two days (Friday's report from Blix) to disarm. The U.S. would then ask the security council to act. If it did not, the U.S. would act with its own coalition. Powell used words and phrases such as 'imminent' and 'late hour.' The trigger is cocked and the hammer is going to fall Sunday or Monday.
The market did not implode on Powell's comments. It tried to initially, but with just over an hour to go buying picked up. Most likely it was short covering in the last hour after the mild early selling was unable to push Nasdaq below 1300. With the techs hanging tough, shorts covered. Nothing powerful, but the market held where it had to in order to keep the consolidation alive. This is what we anticipated, and with the idea that war is clearly coming next week, we anticipate some more up and down action driven by shorts covering before the weekend. Thus action will be up and down, but trending higher as the shorts pull back what they were putting out Monday.
THE ECONOMY
ISM Services posted its 13 straight 50+ reading. Services provide 80% of all jobs, and consumer spending on services represents a huge 39% of the economy. Continued expansion is thus obviously a positive. It was not a resounding story, however. 53.9 was better than the 53.0 expected, but down from 54.5 in December. New orders fell to 53 from 56.2; employment was negative at 49 versus 50.3 in December; Prices jumped to 60.9 from 57. That is not the mix you want to see, but overall it beats a sub-50 reading. Nonetheless, it is clear that services are suffering from the overall slowdown seen this year in anticipation of war.
Mortgages jump back up.
The weekly index hit a 4-month high with applications up 11%. New purchases leaped +12% after plunging 15% the prior week. Refinancing applications were up 10% for the second straight week. Fear of higher rates in the future driving the last participants into the market? Maybe, but the market is long from dead even if it is weakening. If rates do rise, then there will be trouble. That is out there on the horizon, but it has not occurred yet.
Business survey: Economy continues its slowdown ahead of war.
This week we have been again talking to business owners with respect to their activity and the economy. HVAC contractors, restaurants, and other businesses were surveyed. The story is the one we have heard the past two months: it is survival time. This is not only for small businesses; look at all the layoffs from the huge corporations. Everyone is paring, trimming, and otherwise cutting back.
Businesses are working furiously, but it is just to stay alive. They are working longer and harder, trying to do more with less and spending a lot of extra time to bring in clients and customers. Again, while the economic reports indicate some improvement, but those on the front lines are not seeing it. They are working harder and longer, but they are not seeing any gains because of it. Again, it is survival. Some of the more popular restaurants are reporting slack times at normally busy times. The businessmen are noticing the decline in dining out the past month in particular. Several reported having no wait at popular restaurants on Sunday after church, etc. Those are typical signs that the consumer is hunkering down, ready to ride it out and see when the war starts and how well it goes before they do anything.
Businesses are no different. Planning and implementation of plans are at a virtual standstill. The war anticipation has stymied business so they are not in any rush to start new projects, trials, stores, etc. Most echoed the belief that the U.S. either had to go to war very soon or back off completely from war plans. In short, the U.S. has to get Iraq out of the way either by taking out Hussein or making a believable statement that it sees no need for war. The latter is basically impossible to do at this point without a long period of time to show Hussein has disarmed. Virtually all we talked with believed such a delay would kill the economy as the waiting game continues without any investment. Looking at the practical side of the issues, war is inevitable from an economic as well as terror war perspective. If it is inevitable, may it be quick, decisive, and with as little bloodshed as possible.
THE MARKET
Nasdaq held 1300, and when it was clear that level was going to hold the shorts started to cover positions put out early in the week. Volume edged up slightly, breadth was very week (flat on NYSE, negative on an up Nasdaq session), and the small and mid-cap indexes were the only negative indexes in the crowd. Basically the large caps that had been roughed up the past two sessions were covered up as the SP500 and DJ30 led the percentage gains after leading on the way down. Nasdaq was notably lackluster; but for the 1.6% gain in the SOX Nasdaq would have been underwater.
So is there reason to worry that the move up was short covering? Well, no. Short covering is what you would expect when the indexes trade to the bottom of the ranges if that range is going to hold. Each test down in the range has been met with short covering at support to keep it range bound. That is symptomatic of the market's current worry over the Iraq war. It is worried that war will start and thus there is downward pressure. It is worried that war will start and the market will jump up on the news. The latter has the shorts keeping their positions on a short leash as they don't want to get caught, well, short. They take the gain down to support and then see what happens next. Buyers are not buying, but they are not dumping stocks either. This is the same range trading that has occurred the last month.
The key now is whether the market continues to bounce up to the top of the range. Most traders agree it was oversold heading into the session with the DJ30, SP500 undercutting their recent lows, and as we expected, that was enough catalyst to send the indexes back up given the current market mentality. In a severe downtrend the market would turn and sell immediately afterwards. Again, with oil and gold still falling the past week and the dollar (despite Snow's O'Neil-like comments) still trying to stabilize, the market is trying to set up for a war move. With Powell's rather clear speech, we suspect the shorts still won't let their positions stay out too long and most likely will try to cover some more in that snowball effect that we have seen.
Market Sentiment
Not telling us much right now.
VIX: 34.23; -2.35
VXN: 44.34; -0.63
Put/Call Ratio (CBOE): 0.74; -0.16
Nasdaq
Back and forth all session, but managed to close on an upswing though it is still below the 10 day MVA.
Stats: +6.63 points (+0.51%) to close at 1314.4
Volume: 1.36B (+11.9%). Volume rose to almost average levels. Imagine that. Last time it did that was on the 2-25 reversal session where Nasdaq tanked lower and then reversed as the shorts ran to cover.
Up Volume: 578M (+288M). Nothing strong as down volume still topped up volume.
Down Volume: 740M (-150M)
A/D and Hi/Lo: Decliners led 1.05 to 1. Decliners led on an up session. It was the return of the large cap rally as those are the stocks that dominate the index.
Previous Session: Decliners led 1.65 to 1
New Highs: 59 (-2)
New Lows: 89 (+12). New lows rose on an up session. Classic sign of a weak bounce.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Nasdaq hit 1302.05 on the low, and after not one but two subsequent tests of that level it managed to rally in the last 70 minutes for a positive close. The techs were not very strong, and if not for the 1.6% SOX gain it would have been underwater. Indeed, the 10 day MVA (now at 1319) has acted as a kryptonite barrier of late; every time Nasdaq approaches that level it loses its strength. Wednesday it made three runs at the 10 day MVA; time ran out in the session before it could be repulsed by the last test. Still, there are some decent looking large cap techs, at least compared to those in steady downtrends. INTC showed relative strength Tuesday, and it looks ready to move up. Dell posted a solid if unspectacular move. TXN is trying to bounce off the 50 day MVA again. Chip equipment stocks were selling today, yet the SOX was up. Nasdaq could resume its leadership Thursday in the continued bounce higher in the range.
S&P 500/NYSE
The large caps tested a bit lower, and then reversed and rallied on stronger volume as anticipated.
Stats: +7.86 points (+0.96%) to close at 829.85
NYSE Volume: 1.299B (+7.74%). Nice bump up to average on the session, just as it did the last time there was a test of the bottom of the range and the shorts started reeling them back in.
Up Volume: 805M (+650M)
Down Volume: 494M (-541M)
A/D and Hi/Lo: Advancers led 1.18 to 1. Hmm. Very modest breadth indicating it was the large cap stocks that makeup the index leading the way back. Short covering.
Previous Session: Decliners led 1.8 to 1
New Highs: 89 (+15)
New Lows: 174 (+60). Sharply over 100 even as SP500 moved higher. Many stocks were not participants.
The Chart: http://www.investmenthouse.com/cd/$spx.html
Hit 819 on the intraday low and then rallied most of the session. It was much more sedate than Nasdaq as far as volatility, but it was not all upside. It now has some comfort inside the range (above 825), but the 10 day MVA (833) and the 18 day MVA (838) are close at hand. After edging above the 18 day in mid-February to reach 850 (top of the short term range), SP500 has not been able to close over the 18 day. It reached up over 850 on the Monday breakout attempt, but it could not close over it. We anticipate a test of that level and would like to see it move back up toward 850 on the close. The latter may be too much to ask, but with the shorts nervous after the Powell speech, it is not that much of a long shot.
DJ30:
Ralph Bloch was on CNBC today echoing Dick Arms' observations about the 7-month reverse head and shoulders in the Dow. Bloch noted that this was the exact opposite action of the top that was forming in late 1999 and early 2000 when he says he turned bearish on the market. That was a distribution top, while this is an accumulation bottom with strong volume on the left shoulder but weak volume now on the right shoulder (as it is supposed to be). DJ30 did what it had to do Wednesday to hold that pattern together, i.e., holding the recent trading range on the low (7661; it hit 7629 in mid-February) and rebounding. Dow volume jumped to average as the shorts covered those large cap blue chips that had been hammered. It is still well below the 10 and 18 day MVA (7842; 7901) and at the bottom of the range; it has a long way to go to reach the range top at 8000. Wednesday was a good start, however, as again it did what it needed to do (or, in other words, as shorts acted as they have during this range, covering on breaks to new lows for fear of a war starting without them).
Stats: +70.73 points (+0.92%) to close at 7775.6
Volume: 1.299B (+7.74%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
THURSDAY
Wednesday gave the test lower and the rebound. Some of the stronger stocks held their ground and started higher on some decent volume as the recovery happened. With Powell's speech it is rather clear to us that the US will listen to Blix Friday, say it is not enough, have some meetings with security council members to make one last effort to sway them, and when that fails, drop the hammer early in the week.
Talking with floor traders we know that some shorts are thinking this as well. The question is whether we are ahead of the curve or not. Given there are only two more sessions in the week, that is not likely. We anticipate more of a move higher as shorts cover, though it may be ragged. If the indexes make it up to the 18 day MVA or near the top of the range there may be a push lower, but we think that will be the knee-jerk reaction on the actual start of the action. We don't anticipate that to last long, however.
We still want to make clear that while we think there will be a near term run on the war news, after the emotional high the market will have to get back to business of factoring in growth prospects into prices. Key, key, key to this will be whether businesses that were starting to increase their purchasing in December and January not only resume their purchases but intensify them as well. High oil prices and a televised war work to create recession as we saw in Desert Storm. It will be up to businesses to respond to the end of the war with confidence to invest in the U.S.
Thus tomorrow we stick with the game plan: keeping those stocks in good accumulation patterns on our radar, and when they give us the move and we get an opportunity to enter, we do just that. Our aim is for a nice war rally, and from there we will let the market tell us where it is going.
Support and Resistance
Nasdaq: Closed at 1314.40
Resistance: The 10 day MVA (1319). The 18 day MVA (1322). Exponential 50 day MVA (1340) and simple 50 day MVA (1351). 1357, the 1998 bear market low. The 200 day MVA (1364).
Support: Price support at 1300. 1250 after that is another point where some lows have held.
S&P 500: Closed at 829.85
Resistance: The 10 day MVA (833). The 18 day MVA (839). Price resistance at 850 to 860. The exponential 50 day MVA (859), the simple 50 day MVA (868). The bottom of the October consolidation range at 875.
Support: 825 is (roughly) hanging in there. The September 2000/May 2001 downtrend line at 800 and some price support at 800.
Dow: Closed at 7775.60
Resistance: The 10 day MVA (7842). The 18 day MVA (7901) and 8000. A range of resistance at 8000 to 8150 from the late January lateral move. The 50 day MVA (8116). Then 8250, the bottom of the October consolidation range.
Support: Soft support at 7750 was stretched but held. If that gives up, then 7500, but a 7750 breach really opens toe door to test the low at 7197.
Economic Calendar
3-03-03
Personal income, January (8:30): 0.3% actual, 0.4% expected, 0.3% prior (revised from 0.4%).
Personal spending, January (8:30): -0.1% actual, 0.2% expected, 1.0% prior, (revised from 0.9%).
ISM, February (10:00): 50.5 actual, 52.0 expected, 53.9 prior.
Construction spending, January (10:00): 1.7% actual, 0.4% expected, 1.5% December (revised from 1.2%).
3-05-03
ISM services, February (10:00): 53.9 actual, 53.0 expected, 54.5 January.
Fed Beige Book (2:00): Geopolitical issues keeping consumers and investors from spending, blah, blah, blah. Broken record.
3-06-03
Initial jobless claims (8:30): 403k expected, 417k prior.
Productivity, Q4 revised (8:30): 0.2% expected, -0.2% prior.
Factory orders, January (10:00): 1.8% expected, 0.4% December.
3-07-03
Nonfarm payrolls, February (8:30): 20K expected, 143K January.
Unemployment rate, February (8:30): 5.8% expected, 5.7% prior.
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End Part 1 of 2
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