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world stock market, us stock market
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5/20/03 Technical Traders Report Update
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Tuesday: None issued.
Buy alerts issued: PRX
Trailing stops issued: ALGN
Stop alerts issued: GS
You can sign up for Technical Traders Report alerts at the following link:
http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- Late rally pulls market back to flat.
- Dollar debate continues
- Markets set up for bounce higher, but is it too soon?
- Subscriber Choice
Follow through to the Monday selling finds buyers late.
The market tried to turn immediately higher Tuesday, but choppy trade gave way to selling as volume moved higher. As usual, just when it seemed the selling was going to kick into high gear, buyers came back in and rallied stocks late. We were getting ready to close out several positions that were undercutting their 18 day MVA, but then the late buying/short covering hit and many of these stocks managed to recover above their near support. That is the kind of action you like to see in stocks in general, though after such a solid move higher, they really need more than 1.75 days of consolidation.
Though the indexes closed just negative, the broader market as measured by the NYSE advance/decline line moved higher. When the broader market advances even when the indexes are lower, that is always a sign of underlying strength. The large indexes are market cap dominated, and the large caps control their direction. The broader market is made up of lower capitalized stocks, and if they are holding up the market is better off than it looks.
When the dust settled, the big indexes had rallied back to flat, and the Russell 2000 (smaller caps) and SP400 (mid-caps) held their 18 day MVA with nice, tight dojis. A doji is a candlestick chart pattern where the open and close price are basically equal. After a rally higher or a drop lower, this pattern can indicate a change in momentum or a change in direction. In the instance of a sell off, the patterns indicates that buyers caught up with the sellers after the sellers were in the lead on the way down. That was evidenced Tuesday as the indexes sold lower intraday and then rallied back to close very near the opening price. That is that momentum shift that can indicate the move is over. Can is the key word. Dojis are signals or flares to alert us to potential change. They need to be confirmed by action, but many times they are a heads up as to what is coming.
THE ECONOMY
The dollar: the good, the bad, and the ugly.
The good: the dollar was very high historically relative to other currencies. That helped attract and hold a lot of foreign investment dollars along with the relative stability of the US economy into the future. That was good for the economy because we are a debtor nation. Keeping a lot of investment dollars helped offset the lop-sided trade deficit as we bought other country's goods and they did not buy ours. The correction in the dollar is not that bad either as it does help multinational companies, old and new economy alike, sell their goods abroad. The fallacy with this is that this is a relatively small portion of our economy and will not replace the US consumer as the center of consumption for our own goods and that the world's largest emerging consumer of our goods, China, has its currency tied to the dollar. If the dollar falls, then China's does as well, and there is no jump in purchasing power to buy our goods.
The bad: As noted, the rest of the world is in recession, so they are not going to buy that many more of our goods even with a weaker dollar. We argued this over a year ago when the dollar was becoming an issue: as the US economy goes the world economy goes. Moreover, we consume most of our own goods because even with free trade agreements with other countries, those agreements are in the minority and are often mean simply the US consumer is free to buy the other country's goods. Thus a weak dollar has never really been a boon for the US economy.
More sinister is the potential disinvestment in the US if the dollar slips too low. At some point, and nobody really knows where because it shifts depending upon economic conditions, foreign investors decide they can make better returns elsewhere in the world. They sell their dollar based investments and convert them into Euro, Yen, Ruble or other foreign currency based assets. That causes several bad effects, two that are primary. First, there are a lot of dollars flooding back to the U.S. As we have noted, that is inflationary: more dollars chasing the same number of goods in a stagnant economy that is not producing much. That is the very definition of inflation. Second, as US assets are sold, that puts price pressure on those assets, e.g., stocks, real property, etc. You can have that nasty mix of inflation of consumables and deflation of fixed assets and stocks similar to the stagflation of the 1970's. That is bad. It almost slides into the 'ugly' category.
The ugly: Those profiteering on the situation. Not profiting; there is nothing wrong with profiting. We are talking about those such as George Soros who only appear on television every once in awhile, but when they do they have an agenda to push. Soros was on the air today talking down the dollar, saying he had shorted it based on Treasury Secretary Snow's comments. Give me a break, Snow was just repeating what the administration has made known since it came into power: strong dollar in name, but the definition of the strong dollar is open to interpretation. O'Neill was clear in an unclear manner about this, and Snow is doing the same. It is disingenuous for Soros to come on and say that because of Snow's comments he was shorting the dollar. Soros has shorted the dollar and he came on the air to tell everyone who did not know that is what he had done. No surprise that the dollar tanked further after that hit the air. Soros was using his status and the television cameras to further his gains.
The same is going on with the other wealthy names. Warren Buffet is now speaking out against the tax cut package, but that is not the point. Remember when Buffet was out whining (given his prior statements it seemed that way) about the need for terrorism insurance to help the insurance industry? Well, Berkshire Hathaway owns and had purchased dozens of insurance companies during the downturn. Buffet was out talking about how the economy and country needed this protection for the good of us all. Talk about a vested interest in the outcome. It was good for HIS companies. Otherwise we would not have heard from him.
The point: when Soros, Buffet, Gates (Jr. and Sr.) and others speak with altruistic or other innocuous tones, they are speaking for their benefit. They have an agenda to push and that is what they are doing. Buffet did not become the billionaire he is without knowing how to get his way. Ditto Gates, Soros, Trump, etc. That is the ugly side of these 'private' individuals that have gone public much as the Fed governors became more or less talk show hosts during the Fed hype days in 1999 to 2001.
THE MARKET
It was a decent recovery with the market showing something of a return to a more bullish posture just a day after some sharp price selling. In short they rallied back from early selling on some rising volume. Technically a distribution session as the indexes closed lower, but with many stocks rallying back to hold near support it was good action.
The interesting moves were outside the large cap indexes. The SP400 (mid-cap) and the Russell 2000 (RUTX) both showed tight dojis right at the 18 day MVA. This comes after a strong run up the 10 day MVA where the two did not even touch the 18 day intraday or come near it during that run. The test down to the 18 day MVA and tight doji at that level indicates that they are possibly ready to start back up from here.
The other indexes showed the same action, but their dojis were below the 18 day MVA. Typically you want to see the indexes hold over that level for support. That leaves open the question again as to whether after such a solid run a quick pullback is going to be sufficient. It is very possible that the smaller issues that make up the Russell 2000 and SP400 could rally ahead of the large caps. It is not unusual to see different sectors in the market move at different paces. Still, the overall market controls the moves of 75% of the stocks. It looks as if the overall market needs more of a breather even as it maintains a more bullish posture. That is not bad at all, and as usual, we will look at particular stocks in good position as opposed to investing in the overall market with an index fund.
Market Sentiment
Volatility crept higher, but it is taking baby steps. The put/call ratio remained high at 1.0. Two consecutive sessions at 1.0 can give rise to a short term pop higher.
VIX: 23.37; +0.33. Hit 25.08 on the high before the late rally. Nothing huge, but the most action seen in the VIX in quite some time.
VXN: 32.22; +1.12
Put/Call Ratio (CBOE): 1; 0
Nasdaq
Solid comeback off the intraday low, but could not retake the 18 day MVA.
Stats: -1.68 points (-0.11%) to close at 1491.09
Volume: 1.697B (+0.99%). Volume edged higher, technically some distribution but the action was actually good: rallying back to cut losses as volume increases is a bullish sign as opposed to bearish.
Up Volume: 656M (+424M)
Down Volume: 1.019B (-402M)
A/D and Hi/Lo: Decliners led 1.11 to 1. Modestly lower A/D line.
Previous Session: Decliners led 2.34 to 1
New Highs: 84 (-34)
New Lows: 8 (-4)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Touched down to 1480 on the low, holding above the January high at 1468, and rallying to cut the losses. After a run straight up the 10 day MVA Nasdaq has undergone two down sessions, a much needed rest. It was unable to recapture the 18 day MVA (1498), and a quick tap lower such as this does not appear to have shaken out enough sellers to set the stage for another serious leg higher. We are looking for Nasdaq to move laterally over 1475 near term.
S&P 500/NYSE
Very similar to Nasdaq, testing lower and rallying back to close just below the 18 day MVA.
Stats: -1.04 points (-0.11%) to close at 919.73
NYSE Volume: 1.489B (+9.46%). NYSE volume jumped back above average on the sell off and recovery. As with Nasdaq that is not really bad action as the large caps gave up little ground as investors chased them right back up on a dip.
Up Volume: 688M (+542M). Pretty evenly matched trade.
Down Volume: 803M (-404M)
A/D and Hi/Lo: Advancers led 1.3 to 1. Advancing issues again topped decliners on a market loss, a sign of that underlying strength on the heels of the large negative breadth Monday.
Previous Session: Decliners led 2.44 to 1
New Highs: 185 (-10)
New Lows: 13 (+5)
The Chart: http://www.investmenthouse.com/cd/$spx.html
SP500 fell to support at 911, hitting 912 on the low. That was enough to send it charging back up on rising, above average volume. On the high the large caps hit the 18 day MVA (925) and fell back to close. All in all not bad action as the index fought back on rising volume, refusing to give up more gains. As with Nasdaq, however, it would appear that SP500 would need more than just under two sessions to consolidate this move. Still, the market and its stocks will set the pace and we will be ready and follow.
DJ30:
Another tight doji by a large cap index as the Dow sold close to the 50 day MVA (8390) on the low and then rebounded on the first above average volume in the blue chips in over a month. It could not clear the 18 day MVA either, tapping that level on the high (8550) on the early rally. The large caps will get some boost from their tech components Wednesday as HPQ beat the street after hours and had technology up in the late session. More than likely DJ30 will move laterally some over the 50 day, however, before it can mount another rally attempt.
Stats: -2.03 points (-0.02%) to close at 8491.36
Volume: 1.489B (+9.46%)
The Chart: http://www.investmenthouse.com/cd/$indu.html
WEDNESDAY
Greenspan addresses a House committee Wednesday, but the scheduled economic news has not been driving the market. Dollar worries, mad cows, terrorism, and anything else is being used as a reason to sell by those wanting to sell. That is the usual situation. After a rally anything is used as a reason to sell, and the process continues until the sellers wrest control of the market or they are cleared out and leave the buyers in control.
We see many stocks that have tested back to near support or are looking in the process of doing so. EBAY already started back up. AMZN is showing a tight doji at the 10 day MVA. ERES, the stock we wanted to pull back and give us a better entry point, did not wait a second and jumped $1.86 on volume. FDX has made a steady pullback the past week and could be ready as well. It is hard to think that the market could be ready for a move higher after less than two full days of rest, but again, what we find hard to believe is not necessarily the what the market finds impossible. Who would have thought a piece of cardboard stuck in the window to block the sun would be a huge seller? I didn't and that is why I am not in marketing.
With the HPQ earnings we could see the market rally on the open again. Stocks were generally up after hours but we doubt this is the catalyst the market is looking for to start the next leg so soon. It may well propel stocks that are currently in good patterns or have already made decent tests, but the general market overall needs some more consolidation work.
That leaves us being selective about the stocks we are looking at, but again, there are some that are making the test of the 50 day MVA after a strong run up the short term MVA on the heels of a breakout (e.g., APOL). With strong stocks that is often a great entry point. In short, there are still opportunities and we will be looking at the ones the market presents.
As for existing positions, we were looking at exiting several before the late rally pushed many back over the 18 day MVA. As long as stocks continue to use that 18 day MVA (50 day if it is close or we have a big gain and willing to let some stock positions ride after taking some $ off the table already) and show good price/volume action, we will be inclined to give them a bit of room.
Support and Resistance
Nasdaq: Closed at 1491.09
Resistance: The 18 day MVA (1498). The 10 day MVA at 1512. The December intraday high (1522). Some resistance at 1550 to 1560. 1570 to 1578 (June 2002 closing low, May 2002 high). Down trendline from the May 2001/January 2002 intraday highs around 1582.
Support: The August 2001/January 2002 down trendline (1486). The January high (1467). The exponential 50 day MVA (1443). The March and August highs (1426 and 1427).
S&P 500: Closed at 919.73
Resistance: The 18 day MVA (925). 935 (November and January peaks). The 10 day MVA (931). 954 (December intraday high). 965 (August 2002 peak).
Support: Price tops at 911 (July). March and April highs (896 and 905). September 2000/March 2002 down trendline (900). The 50 day MVA (901) and the 200 day MVA (883).
Dow: Closed at 8491.36
Resistance: 8522 and 8520, the March and April twin peaks. The 18 day MVA (8545). The 10 day MVA (8581). November and January highs (8800, 8870). December high (9044).
Support: The 50 day MVA (8390). The 200 day MVA (8326).
Economic Calendar
5-19-03
Leading Economic Indicators, April (10:00): 0.1% actual, 0.0% expected, -0.2% March.
5-20-03
Treasury Budget, April (2:00): $51.0B actual, $50.0B expected, $67.2B March.
5-22-03
Initial jobless claims (8:30): 420K expected, 417K prior.
SUBSCRIBERS CHOICE
Great newsletter. What do you think of HYGS? Long-term uptrend in place; interesting succession of cupnhandles since last June...rising volume...$5.40 looks like a pivot point? One for the watch list?
Thanks again for the great advice.
HYGS is trying to set up a move higher, moving off the July low near $3 with that progression of bases (3) as you noted. It has not been able to put together the base that breaks it to the next plane so to speak, as it has given much of the moves back. Still, it is doing something important: the low in each base is holding above the low in the prior base, and that established that uptrend you referenced. Another thing these 'base-on-base' patterns do is further work through the noncommitted holders as they are repeatedly disappointed.
As for the nuts and bolts, earings per share fall in the 35th percentile. As for the pattern, accumulation is decent at 10 up weeks on rising volume to 7 down weeks on rising volume. The last base, a 3 month cup with handle pattern, shows 5 to 3 accumulation. The handle is quite volatile, however, swinging 60 cents (12.5% swings) on some pretty strong volume. You would prefer to see the stock settle down into a tight range on lower volume, moving laterally and slightly lower. With good money flow the volatile handle appears to be its main technical Achille's heel. The stock has had a hard time holding onto the gains and making a stronger run higher, so we would prefer to see it settle down, put in another week or two of accumulation, and then make the breakout.
SEMINARS ON CD
http://www.stockseminarsonline.com
This is Jon Johnson's own site devoted exclusively to seminars designed to teach you what you need to know about the stock market and stock movement and how to take advantage of those moves without incurring the usual high costs of travel and related expenses usually associated with seminars.
End part 1 of 2
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world stock market
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