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us stock market, stock watch
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6/11/03 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: FLIR
Buy alerts issued: STEL
Trailing stops issued: None issues
Stop alerts issued: WTW; PRX
The market alert service is an additional paid service where we issue intraday alerts relating to the general market conditions, when stocks hit action points (buy, stop, target, etc.), and when we see other information impacting the market or our stocks. To subscribe to the Daily alert service you can sign up at the following link:
http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- Sluggish early session again gives way to continued rally.
- Fed governors out in force, hint at a larger rate cut coming.
- Another gain on rising volume though it is a shadow of prior accumulation sessions.
Market again shakes off some disappointing news and early weakness to post gains.
TXN and CYMI warned and that was followed by a general chip downgrade to 'in line' from 'outperform' by Morgan Stanley. The chips were down before the bell ever started. More bombings in the Middle East put a further damper on the market. After a test lower that did not really even scare near support levels, however, buyers again entered the market and pushed up stocks. The move was led by the mid-caps with the biotech and small oil and gas stocks that make up a significant portion of that index leading the way.
The biotechs had pulled back for 2 or so sessions and Merrill came out and declared the biotech pullback was over. Greenspan's comments on the natural gas shortage seemed to have a delayed effect on the energy stocks though that was helped by OPEC's decision to keep production lower. Those sectors finally dragged the rest of the market along with them.
Volume was up and breadth was wide, but it was not a strong surge. There were some more buyers in the market as the rising volume shows, but it was also a shadow of prior sessions. The market has been moving up lately on a lack of sellers versus a strong number of buyers. In an uptrending market stocks tend to rise in a vacuum of market moving news just as we saw they would drift lower during the downtrend. Stocks need to consolidate and have been trying to do that, but there is enough 'buy the dips' mentality out there to keep them rising as money is forced into the market to 'put it to work'. The big money has pulled back substantially on their buying, and the market appears to be coasting higher on momentum. At some point that will run out and a consolidation will ensue. It has been trying to do that, and this action very much fits the early stages of a consolidation's beginning.
THE ECONOMY
Fed governors were out en masse Wednesday giving speeches regarding deflation and how they thought there was little chance for that actually occurring, but if it did or was threatened, how the Fed could stave off such an attack with its lightning fast responses with rate cuts, treasury purchases, etc. As if anyone believes the Fed could do such a thing and that it could or would act fast enough. Certainly its track record regarding timeliness and effectiveness is poor, and even Greenspan said we did not want to slip into deflation because we just don't know enough about how to combat it. It always makes us very uneasy to hear comments from Fed vice chairman Ferguson stating confidently that the Fed could overcome deflation all by itself. That arrogance is in large part what got us the crashed stock market and economy, recession, millions of unemployed, hundreds of thousands of bankrupt small businesses, and a very uncertain future with respect to the baby boom retirement.
With the release of the Feb Beige Book prepared by the Dallas Fed, an issue was raised about the need to combat further potential declines and how the economy might need more stimulus than many thought. The Fed Funds Futures contract already has a full 25 basis point cut priced in. It has now almost priced in a 50 basis point cut. The talk is that there will be a 50 basis point cut. Some say that will scare the market as it is a sign of potential trouble, others say no, others simply will not ever know.
Here is what the Fed is telling us. Greenspan released the 11 out into the hinterlands to prepare everyone for this meeting as he typically does when he is planning something bigger and wants to set the stage. The Beige Book is part of this plan as well. He is sending them out and they are talking (as did Greenspan) about the need to contain deflation, the need for 'insurance' against that pernicious problem, the problem that a natural gas shortage could cause the economy, as well as other unknowns that we cannot foresee. He says the economy is rebounding, but it needs to be better. His men are saying the Fed can make the difference. They are setting us up for a larger cut. The market has accepted a 25 basis point cut already; there is no need for the Fed to prepare us for that. It is now setting the stage for a 50 basis point rate cut that it is saying is not really needed but is just 'insurance,' a just in case cut just as the last 50 basis point rate hike that killed the economy was a 'just in case' rate hike. This way the Fed can cut rates again, announce it is buying the long end of the Treasury market, and get away with massive new stimulus without stoking fears that the Fed 'knows something we don't.'
Fewer millionaires.
Millionaire levels fell 1.9% over the last year, down 100,000. Their overall assets fell by 2%, the first decline in 7 years. Before saying 'serves them right,' we need to remember that they also help generate the jobs for the rest of the country. In any event, the Fed played the dangerous game of wishing for something and then getting a lot more than it wanted. Remember when Broadus said he wanted to see unemployment higher? Got it. Worried about the mythical 'wealth effect'? Trim off $10 trillion in net worth and that will do it. Consumer getting too aggressive? Drop 9 million jobs and that will take care of that. Lucky the housing market was not surging in 1999 or it would have tried to crash that as well.
Those events are the Fed's legacy. Who cares if Greenspan can claim he got us out of recession? He was a big part in causing it with his pumping up the money supply that exploded the stock market higher and then took it all back in some of the biggest monetary goofs of all time. To claim the Fed saved us from deflation is like setting a building on fire, letting it burn to the ground, and then taking credit for saving the awning over the front door. Now Greenspan is talking about the natural gas market. What? The Fed chairman is now into the energy market as well as the stock and housing markets? Give a governmental agent a little power and credibility and he usurps and expands his powers. What happens? We have the stark, sad reminders everyday when we see those seeking jobs and retirement accounts that are going to be hard pressed to retire anything other than themselves.
THE MARKET
The buyers won the session again, overcoming early choppiness to close higher on solid breadth and once again rising volume. The market needs a break but try telling it that. We have the feeling it is giving us a big head fake with this last move higher, but gauging how far an overextended market can run is problematical. There is much too much giddiness and other signs of pure momentum for the market's own good. Look at Merrill today, declaring the biotech correction was over. A two to three day sidestep is a correction? Nasdaq is 20% over its 200 day MVA. It could go to 25% or even 30%. We hope not. The higher they rise the farther they fall.
Volume was up but it was not the strength it has been. There was some big money buying stocks today but it was not what you would expect for the next surge. There was never a real pullback so there are not as many ready to buy back in at these levels. Similar to the recession that was not too deep, the recovery is not too strong and could fade without loving care. The main thing to note about the price/volume action is that the market is not distributing and that there are simply fewer sellers than buyers at this point. With a lot of the former buyers sitting on the sidelines and waiting for a pullback, there may be more sellers than buyers before too long.
The market is moving on momentum, and that could carry it through Father's Day on up to right before earnings in July. We would expect some nervousness at that point as stocks are up and there is the chance that earnings again won't reflect real top line growth just yet. Concerns about disappointments could slow things down heading into earnings. That is conjecture at this point, however, as the market continues to climb on plausible price/volume action. Again, fighting the tape is a losing battle, and we continue to take positions that show us the right kind of moves while we let our establish plays continue to run well for us.
At the same time we are quite conscious of how extended the market is and remain ready to take gains if stalls out. We still think this action is the start of a consolidation with the rising volatility, some reversal days on volume, waning volume on advances, and fewer breakouts simply because stocks are quite extended already. That keeps us on edge, but that is nothing new.
Market Sentiment
The weekly investor survey showed bullishness much too high at 58%. A reading over 55% historically is trouble. Bears were down to 16%. A reading below 25% is historically trouble as well. The picture of this rally is getting a bit tattered with the sentiment really getting extreme along with increased intraday volatility, lower volume gains, some high volume intraday reversals, etc.
VIX: 22.12; -0.01
VXN: 33.74; -0.26
Put/Call Ratio (CBOE): 0.65; -0.13
Nasdaq
Back to 20% over the 200 day MVA as stocks rally on stronger volume even without the semiconductors helping.
Stats: +18.35 points (+1.13%) to close at 1646.02
Volume: 1.943B (+7.98%). Volume was back above average and quite solid. It was lower than the prior two weeks of gains, but prior to those moves the session would have put it in the top tier of volume moves for the year.
Up Volume: 1.236B (-54M)
Down Volume: 683M (+212M)
A/D and Hi/Lo: Advancers led 1.46 to 1. Without the chips, breadth was modest.
Previous Session: Advancers led 1.81 to 1
New Highs: 195 (+39)
New Lows: 7 (+4)
The Chart: http://www.investmenthouse.com/cd/$compq.html
No real breakthroughs, just testing the 10 day MVA on the low (1612) and rebounding on rising volume, just missing a new 52-week high. Nasdaq continues an impressive move up the short term MVA with just two short intervals of rest in the move from 1350 to 1650. Nasdaq is approaching the recent intraday high (1684) where it gapped higher and then reversed on high volume. This is a level of caution. If Nasdaq gaps higher again and reverses again on high volume at that level we would be pretty concerned that this part of the move was mover as that would be a double top with double reversals. That has not happened and price/volume action is good for the most part. Thus we continue to cautiously participate in this move.
S&P 500/NYSE
The large caps broke through to a new recent closing high as volume surged over the Tuesday trade.
Stats: +12.64 points (+1.28%) to close at 997.48
NYSE Volume: 1.485B (+15.73%). A return to above average volume as stocks moved ahead. There was some accumulation ongoing though somewhat less than in the prior three weeks.
Up Volume: 1.134B (+213M)
Down Volume: 355M (+13M)
A/D and Hi/Lo: Advancers led 2.59 to 1. Excellent breadth as the mid-caps posted solid gains.
Previous Session: Advancers led 2.43 to 1
New Highs: 415 (+86)
New Lows: 5 (+2)
The Chart: http://www.investmenthouse.com/cd/$spx.html
The large caps successfully bounced up off their second test of the short term MVA after the early May breakout. Back up close to the psychologically important 1000 level where it turned back just 4 sessions back (1007 intraday). If they can clear that level on stronger volume that paves the way to 1050 in a Father's Day push. At that point it is in dire need of a pullback, but that is nothing new. We are going to watch the 1010 level closely to see how it responds to that recent high. As with Nasdaq, if there is another higher volume reversal that is trouble for the rally. At this point, however, it is going about its business on once again decent price/volume action.
DJ30:
The blue chips led the pack higher though DJ30 volume was still below average. The move smashed through the August high at 9077, though without volume the move lacks that volume that shows the buyers were really supporting the move. 9216 is the recent intraday high where DJ30 reversed. The volume is lower, but the momentum is carrying it higher. We will watch that 9216ish level.
Stats: +128.33 points (+1.42%) to close at 9183.22
Volume: 1.485B (+15.73%)
THURSDAY
Retail sales and weekly jobless claims are out before the open. The market has continued its rally mode as it overlooks earnings warnings and downgrades and pushed higher. It now has some more hard data to chew on as it approaches the recent highs where it gapped higher and then reversed. This will be an important level for us; if the market handles it with ease it has a clean shot to the next resistance level and will be that much more overextended.
Thus far we have viewed the action as indicating that the market is ready to pullback even as it continues to move higher. Thus even as it rallies we see some of the foundation being eroded away. The issue is at what point it falls into a more sustained correction. As we said, it is hard to fight the tape, particularly with rising volume on up sessions. We will watch how it trades around the recent highs where it reversed intraday to see if there is a repeat of that action. We will be wary of strong gaps higher. As long as the intraday action remains solid (no gaps and reversals) we will continue to take advantage of those stocks making good moves that can make us money. We will just have to be ready to pull the plug if there is another strong volume reversal and things start to break dwon.
Support and Resistance
Nasdaq: Closed at 1646.02
Resistance: 1685 (recent intraday high) is a point to watch. 1700 (Feb 2002 low).
Support: The 10 day MVA at 1610. 1595 (June 2002 closing high). The 18 day MVA (1585). 1573 (May 2002 closing low). The May high (1554) is what we are watching as a primary support level. The December intraday high (1522). The exponential 50 day MVA (1511) is the next primary support point. The January high (1467).
S&P 500: Closed at 997.48
Resistance: 990 to 1000. Then 1050.
Support: The 10 day MVA (977). 975 (December 1997 peak). 965 (August 2002 peak). The 18 day MVA (964). The mid-May high (948). 935 (November and January peaks). The 50 day MVA (931).
Dow: Closed at 9183.22
Resistance: 9500 (June 2002 lows).
Support: The August high (9077) and the December high (9044) may now act as some support. The 10 day MVA (8981). The 18 day MVA (8874). January high (8870). November high (8800). May high at 8743. The 50 day MVA (8619). 8522 and 8520, the March and April twin peaks. The 200 day MVA (8339).
Economic Calendar
6-09-03
Wholesale inventories, April (10:00): -0.1% actual, 0.2% expected, 0.4% March (revised from 0.5%).
6-11-03
Federal Reserve Beige Book (2:00)
6-12-03
Business inventories, April (8:30): 0.2% expected, 0.4% March.
Retail sales, May (8:30): 0.0% expected, -0.1% April.
Sales ex autos (8:30): 0.2% expected, -0.9% April.
Initial jobless claims (8:30): 425K expected, 442K prior.
6-13-03
Trade balance, April (8:30): -$41.9B expected, -$43.5B March.
PPI, May (8:30): -0.1% expected, -1.9% April.
Core PPI (8:30): 0.0% expected, -0.9% April.
Michigan sentiment, June (9:45): 94.0 expected, 92.1 May.
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 3
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