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us stock market, trend trading stock
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4/30/01 Technical Traders Report
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Technical Traders Subscribers:
TONIGHT:
- The indexes switch roles as the Nasdaq rises on strong volume.
- More stocks breaking out of good bases.
- Consumer hanging on despite lower confidence as manufacturing still struggles.
- Subscriber Questions.
- Team Trades.
ONLINE SEMINARS:
Live, interactive web seminars. We can and will jump to the web to look at web sites, view the market and after hours sessions on eSignal on the Wednesday evening and Friday morning courses, and we can pull up and review any chart you want to take a look at!
Choose your courses (package discounts available) and choose your times (Wednesday evenings, Friday mornings, and Saturday mornings).
For more details and to sign up:
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THE SUMMARY
Nasdaq advances on some decent volume.
No blowout move once again, but the Nasdaq did reverse its recent tendency to rise on slightly lower volume. The index was up by as much as 4% on its high (2159.08), but gave most of that up in the early afternoon before a last-hour bounce reversed the selling. The late-session selling that has been cropping up is the reverse of the classic bullish action we were seeing, i.e., the early softness followed by a steady afternoon rally. The late rally came at a good time and put some of the shine back on the session.
The Dow and S&P 500 reversed their price/volume action as both indexes blew substantial gains on rising volume as they fell off the table in the afternoon. The Dow lost almost 130 points from its intraday high (10,906), showing that the 11,000 range is still going to be a very tough nut to crack. The big caps nudged 1270 on the high (1269.30), the top of the range we have pegged as resistance, and they too tumbled down after that. Combined with the volume, this was not bullish price action.
Still, a day of distribution does not doom those indexes. Indeed, as we said last week, they were more likely than not going to have to test those resistance points before gathering some more steam to make a break through them. For now their patterns remains in tact and they look solid. Another test of the 200 day MVA on the Dow (at 10,615.58) may be in store before that.
Stocks breaking out and successfully testing the breakouts.
Today again we saw more stocks race ahead on strong volume as others test their previous breakouts and move higher, while still others continue to set up for their breakouts. We are seeing many stocks showing solid patterns in various stages, and that is a real plus for the market overall. When stocks are looking and acting good that is one of the final signs that the market is improving. As long as they continue to build their patterns and continue to breakout on high volume, that bodes well for the market.
At the same time we are not seeing dozens racing for the stars. The big indexes are still trying to break free, and many of the big stocks are acting the same way. We are seeing smaller cap stocks performing well (e.g., WLSN today) as they continue to join the ranks of those stocks breaking higher out of solid bases on strong volume. We will see new leadership this time around, and it has been in the retailers, some financials, builders and building material stocks; these are all leading sectors when the business cycle starts its recovery. Now we are seeing other stocks coming up to help out such as NVDA, BRKS, GENZ, CPN, FIC, CHIC, FDC, BMET. That is a broad group and shows how the market is moving up across the board.
THE ECONOMY
The first wave of economic news in a week heavy with the stuff hit the market this morning. It was generally in line and the market seemed to embrace it, but it did not roar to life based on it.
Income up, spending still up.
Personal income rises 0.5%, in line with expectations. February was revised slightly higher to 0.5% as well. Good. The more income, the more consumers can spend to help the economy that still needs significant help.
Personal spending rose 0.3%, also in line with expectations. February was revised slightly down to a 0.2% increase. Wages and salaries rose 0.5% after a 0.7% gain in January and a 0.69% gain in February. Overall, that puts the savings rate at -0.8% in March, a bit higher than the -1.0% drop in February. Now that looks ominous still, but remember, the government does not take into account anything that does not go into a traditional savings account. No 401k contributions, IRA contributions or other types of investment are included. This is one method our paternalistic government tries to keep us cowed into thinking we are too foolish to look out for ourselves. "See," our leaders say, "You cannot even save enough so how are you going to take care of yourself? Give us the money and we will take care of you." Hello. Welcome to the failed economies of the eastern block and Sweden with the world's highest suicide rate and, not coincidentally, the world's highest tax rate. The government is real cozy there as it has a hand in every one of your pockets. We have got to reverse that trend in our own country and get back to rewarding thinkers, inventors, entrepreneurs, risk takers. That is how innovation and prosperity comes to life.
Manufacturing still struggling.
Chicago Purchasing Managers report comes in at 38.9, lower than the 40 reading expected, but at least it climbed off of the 19-year low it hit last month. This keeps alive the notion that the Fed will again cut interest rates at the May 15 meeting and probably again in June. As we said, unless something absolutely dramatic happens in the economy, the Fed is going to cut rates again. It is a drug that it cannot quit taking until it sees what the actual results are. It knew that raising interest rates was going to hurt the economy, but it just had to do it once it made up its mind, as did the 1929 Fed, that inflation was behind every corner. Not only until it saw how bad it had hurt the economy was it able to overcome its addiction. Now, just as with any reformed obsessive/compulsive deficient, it has swung the other way, and it won't stop cutting rates until it sees a racing economy.
Unfortunately, the Fed's lead foot is not the best way to run the economy. It starts a decline and then accelerates it until it is impossible to stop it in time. Then it reverses course and guns the engines as hard as it can the other way until it not only turns, but is making good wake in the other direction. Money supply has shot off the map and if producers don't get going, we could actually see that inflation that WAS NOWHERE IN SIGHT until the Fed started its toying with the economy. Got to have some stimulus for the producers to start producing, and the Chicago report indicates that is not there yet. Maybe Tuesday's auto sales, construction spending, and NAPM reports will give us a good result that the economy can build on.
THE MARKET
Overall market stats:
VIX: 28.19; +0.42. Volatility was basically flat on a day when the Dow raced ahead and then plunged back down into negative territory. The 26-27 range has been the low end (with some moves to 24) most of the past six months, and this has led to some selling bouts. With the NYSE volume higher on selling in the SP-500, we have to be concerned about some weakness here now that volatility is tapping lows. Still, we would look for the 200 day MVA to hold.
VXN: 68.71; -2.59. Once the VXN cracked, volatility on the Nasdaq 100 has plunged. It has hit bottom the past three months at 66 to 67, and the Nasdaq has suffered weakness when it has, though the correlation is not absolute. We will keep an eye on this, but the Nasdaq showed better price/volume action today, and we give more deference to that.
Put/Call ratio (CBOE): 0.49; -0.14. This is the lowest level we have seen from this ratio in several months, but it is not unexpected given the rise in the indexes. There is not much for this indicator to show us right now as it has done its work. Total option activity on the CBOE rose to 1.219 million (902,000 Friday).
NASDAQ: Started like a ball of fire and then rose from there. Unfortunately, the fireball was running out of fuel in the afternoon. It caught some life late and put in a solid day on rising volume. The doji, however, once again shows its head on an attempted breakaway move.
Stats: Up 40.56 points (+2.0%) to close at 2116.24.
Volume: 2.207 billion shares (+22.5%). A solid, though average, volume day on a good gain in the index. Very refreshing. Up volume came in at 1.419 billion shares versus 548 million downside shares. About the same number of sellers but more buyers coming in as opposed to Friday. Still, we note that today's volume on the gain is equal to Thursday's selling volume. There has been no definitive break, and the candlestick pattern shows that.
A/D and Hi/Lo: Advancing issues continued to lead 1.65 to 1 (1.7 to 1 Friday). New highs rose to 148 (+39) as new lows rose to 29 (+5).
The Chart: http://www.investmenthouse.com/cd/$compq.html
Today looked really promising with a gap higher and a strong surge after that. The Nasdaq topped out at 2159.08 right before lunch, and failed a later attempt to move past that level. The index did gap up over the 50 day MVA (2079.55) and held on to close above that level, but it had to test it first. The candlestick chart showed us another one of those doji's on an attempted move up, and that means that although the index closed higher, the sellers were able to catch up with the buyers on the session and it closed right where it opened. The last bounce was good, but it did not put the seal of approval on the session. Higher volume was much needed on the break above the 50 day MVA. Now it might test that level (2079.55) before it takes another shot at the recent high of 2200 and then 2250. We want to see it hold there or the 10 day MVA at 2045.56. The price/volume action is returning to the way it should be, so it looks better overall.
Dow/NYSE: The Dow may not give the Nasdaq much help as it fell on rising NYSE volume today after tapping at resistance on the high (10,906.41).
Stats: Down 75.08 points (-0.7%) to close at 10,734.97.
Volume: NYSE volume jumped up to 1.230 billion shares (+11.4%), right at average. Still below the volume on Thursday's gain, but a distribution day nonetheless. 639 million upside shares versus 579 million downside shares. Good to see upside shares still in the lead on overall selling.
A/D and Hi/Lo: Advancing issues also continued to lead, but down quite at bit to 1.26 to 1 (1.98 to 1 Friday). The NYSE A/D line is still trying to rise even on down sessions, showing that small stocks continue to lead. New highs fell to 155 (-7) as new lows rose to 11 (+1).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow was up in the morning, tapping close to resistance at 11,028 on its high (10,906.41) before it turned and fell in the afternoon. The rising volume is not what we like, but it is the first such day of distribution in a long time and one day does not doom a rally as we noted last week. Still, the higher volume reversal shows that the index will most likely test down to some support. We would like to see that as the 200 day MVA at 10,615.58, but it might be the 10 day MVA (10,559.05) or the 18 day MVA (10,402.31). That is the bullish scenario, and that is what it is showing us thus far. If it continues to sell on sharply rising volume, that is a change in character. For now it is looking good still, but it looks as if it will sell back in the short term. Protect short term positions taken on this last leg higher.
S&P 500: The big caps also tapped at some resistance on the high (1269.30), where the index formed a small double top in late February and early March, and then turned and fell. NYSE volume was higher, coming in right at average. It closed the session right on some potential support at 1250. Holding here would be great, but to show such equivocation right after breaking over some potential resistance indicates it may send it back down to the 10 day MVA (1226.74) or the 50 day MVA and 18 day MVA that are converging near 1216.30. Again, the index needs to clear 1270 on strong, above average volume before it can really start a solid move higher.
Stats: Down 3.59 points (-0.3%) to close at 1249.46.
Volume: NYSE volume rose to 1.230 billion shares (+11.4%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Big economic news out tomorrow that will give us another look into how the consumer is holding up in light of the reports of falling confidence. Auto sales are a big ticket item the consumer has been buying with vigor the past few months. Was it all promotions or rebates or it is a continuing solid underpinning of the economy as the housing market has remained to be? In addition we will see how business is doing with construction spending and the NAPM, the national manufacturing report card. Without any stimulus on the supply side we are not anticipating a big rise here and most expect it to come in flat. The key will be the inventories; are they shrinking as some reports have been showing. If so, the idea of a second half recovery does not seem so absurd, at least in manufacturing. It was the first to tank, and perhaps it can start to rebound first.
Today we were doing what we said we were going to do over the weekend, taking positions on breakouts, and catching the good bounces that we were seeing. Basically implementing the bullish plays as they presented themselves. As there has been no breakaway yet, we are being careful with option positions, looking for that definitive move in the Nasdaq and S&P 500 before we get really heavy into these time limited positions. There are several quality stocks as we noted above that have been leading higher, and we have been devoting investment dollars to owning these shares. As we said over the weekend, we believe another bull run is at hand this year, but we have to remain vigilant for any testing of the low. The numbers look good, but just as people get comfortable we can have a very uncomfortable move down.
You have noticed we are relaxing our stop losses a bit back to the 7% level on new buys given the bullish price/volume action we are seeing in many stocks, but we cannot ignore our sell rules even when things appear to look better. This has been a long bear market and there is still a lot of overhead out there that can be sold into the market. On short term plays take your gains on early. On long term plays, let them run, but don't ignore your sell rules. This is not yet a situation where an uptrend is well established and the trend can bail you out. Protect gains and protect your capital. We are doing that by looking for the move, and then getting in when we see it, setting stop losses, and living with them.
Support and Resistance Levels
Nasdaq: Closed at 2116.74.
Resistance: 2250, then 2290 to 2300. It is very congested in this range (thicker ice).
Support: The 50 day MVA is at 2079.55; that would be a great place to hold. The 10 day MVA is at 2045.5610. The 18 day MVA at 2006, then 2000.
S&P 500: Closed at 1249.46.
Resistance: 1260 to 1270.
Support: The 10 day MVA is at 1226.74. The 50 day MVA is at 1216.30 and is converging with the 18 day MVA at 1210.84.
Dow: Closed at 10,734.97.
Resistance: Real congestion from 10,750 to 10,900. Then 11,028.
Support: The 200 day MVA is at 10,615.58. The 10 day MVA (10,559.05) and then 10,450. The 18 day MVA (10,402.31) is lurking below.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
4-30-01
Personal Income, March (8:30): 0.5% actual versus 0.5% expected and 0.3% prior.
PCE, March (8:30): 0.3% actual versus 0.2% expected and 0.3% prior.
Chicago PMI, April (10:00): 38.9 actual versus 40.0 expected and 35.0 prior.
5-01-01
Auto Sales, April (0:00): 6.4M versus 6.4M prior.
Truck Sales, April (0:00): 7.5M versus 7.7M prior.
Construction Spending, March (10:00): 0.2% versus 0.6%.
NAPM Index, April (10:00): 44.0 versus 43.1 prior.
5-02-01
Factory Orders, March (10:00): 1.4% versus 0.4% prior.
5-03-01
Initial Claims, 4/28 (8:30): 390K versus 408K prior.
NAPM Services, April (10:00): 50.2 versus 50.3 prior.
5-04-01
Nonfarm Payrolls, April (8:30): 25K versus -86K
Unemployment, April (8:30): 4.4% versus 4.3% prior.
Hourly Earnings, April (8:30): 0.3% versus 0.4% prior.
Average Workwee, April (8:30): 34.2 versus 34.3 prior.
SUBSCRIBER QUESTIONS
Q: When you state specific volumes to watch for on breakout, or a buy point, is that a volume number for the time of breakout or buying, or is it on the entire day's volume?
A: It is the volume for the entire session. We are looking for the volume to be in that neighborhood when the day is done. Of course, that means we will many times be taking positions without really knowing what the final volume for the day will be when we see an early breakout over resistance levels. At that time we look or ask our broker what volume is; we already know what we want it to be for the day and we can make a comparison. Most likely it won't be near where we want it to be, but we can ask if there are a lot of block trades or at least a good jump in volume. If we are not comfortable, we can wait a bit and see if volume is jumping. We can check www.investors.com (for IBD subscribers) to see where it is this session in relation to the 50 day MVA. We like it best when volume is strong and the stock breaks out later in the session; that is a clear buy.
In summary, when a stock breaks through the buy point, we usually look for a surge in volume. We either see it on our screen or our broker tells us that is happening. We then make the play. We also put in buy stop orders a quarter point above the breakout when we are not going to be around based on the idea that if it breaks that level it will most likely be on strong volume. If we are wrong we simply have to use stop losses to protect us. It is reality that we cannot watch the market all day every day; we do not want to. We pick our buy points carefully as we want to be able to buy with confidence whether we can watch closely at the time or if we are relying on our brokers.
TEAM TRADES
ONIS, a stock on the Daily, had pulled back to the 50 day MVA on pretty low volume (for that stock) Friday and looked ready for a move up. We have seen a lot of stocks in a similar pattern, having broken back over their 50 day MVAs on strong volume, and pulling back since to major support. We were looking for a strong move back up and break over the April high of 40.95.
When the Nasdaq gapped open higher today, ONIS did the same, opening up over 2 points to 34.35. That set off an alert on eSignal just after 8:30. The stock pulled back to test 33.80 and bounced back up on strong volume, and we were tempted to get in at that point, but the early hour made us wait. The stock, of course, immediately ran to a high of 36.17 just after 9:00, but our opportunity came on a pullback to the 5-minute MVA and a test of support at 35.50. The stock headed back up on positive volume, so we entered a bid on the July $25 options. They were trading at 14.50 by 13.50, a $1.00 spread, so we put in a limit order at 14.25 for the fill. ONIS then headed up and we put in a stop loss at 11, and went about other business for a while.
When we looked again at 2:48, just before the close, the stock already had pulled back and bounced back up from the 36.75 range, then taken a deeper dip down to 35.50 but was holding above that level. Showing good volume (4.82 million; the average is 3.6 million and the stock had closed Friday at 3.6 million), the stock is looking good for a continued move up from here.
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
Investment House subscribers are offered a special from eSignal for those
interested in a realtime service. Contact:
Genevieve Tsamoudakis
Account Executive
Data Broadcasting Corporation
800-322-1617
gtsam@dbc.com
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www.esignal.com
End Part 1 of 2
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