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world stock market, us stock market
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7/15/03 Technical Traders Report Update
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Tuesday: SOX
Buy alerts issued: GLDN; GGNS
Trailing stops issued: PPCO; FLIR
Stop alerts issued: NCOG
The market alert service is a premium level 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:
- Market tries resistance again and reverses again.
- Greenspan modestly upbeat, NY PMI better than expected.
- SOX poised for a breakout but can Intel help deliver.
Early rally attempt fails as intraday action turns more bearish.
For the second consecutive session stocks started higher amid earnings and economic optimism, and for the second session stocks gave back the move. Tuesday they gave it all back and more as the large cap indexes continued to struggle with recent highs and semiconductors just could not make the breakout move.
MER beat the street handily, retail sales were better than expected, and the Empire State manufacturing report easily topped estimates. Again the bounty of good news had stock futures higher. Stocks opened higher but soon ran right into familiar territory. SOX hit 408.80 on the high, but could not hold the move to break that 407 resistance. The other indexes tested resistance to a various degrees and also pulled back to close negative after early positive moves.
Volume was mixed as Nasdaq volume lightened up and NYSE volume edged higher. Breadth was poor at -2:1 on NYSE, but just -1.2:1 on Nasdaq. All things equal we look at the leading Nasdaq index and there was no distribution and downside breadth was modest. It is coming back to test the recent break higher and to fill the gap. Now we see if INTC can provide a spark to break higher out of the lethargy the market has shown the past two sessions.
THE ECONOMY
Greenspan says what is expected.
Chairman Greenspan overall was more upbeat than he has been the prior two addresses before Congress. He mentioned deflation by name and said it was "remote." He cited second half GDP growth estimates at 3.5%. He made it clear that the Fed was being accommodative and would remain so until the economy was kicking hard. In short he talked up the economy some and continued to assure that the Fed would be on the accelerator longer than most thought.
Bonds explode higher.
That did not calm the bond market. Greenspan's upbeat economic comments sent it sharply lower again, running the 10 year treasury to almost 4%, a 20% move on the session. After breaching that key resistance level at 3.5%, the 10 year note has made a hasty run to 4% as expected. The Fed is trying to keep rates lower but also trying to instill some confidence that the economy is recovering. Those two positions are ultimately at odds with one another as an improving economic climate puts more demand on money and thus rates tend to rise. After holding rates artificially low as the stock market and even the bond market sensed economic improvement, when the Fed lost a bit of control, bond prices tanked and yields jumped higher.
The question everyone is concerned about is whether yields are getting to high and thus will choke off a recovery along the lines of Japan. That is always a possibility, but in a healthy recovery that is not a real problem because rates seek equilibrium based on growth. The US has adopted stronger pro-growth fiscal and monetary positions than Japan, and the financial markets are responding to that accordingly. Whether it has been enough remains to be seen, but there are signs of improvement.
Signs of improvement.
Improving financial markets, improving earnings in financial stocks, improvement in the venture capital markets, a significant increase in merger activity, and an increase in IPO's all signal a business side of the economy that is taking steps beyond just sensing a recovery is at hand. Further, Intel announced a dramatic jump in gross margins, indicating it is getting some pricing power in certain areas of its business that are in higher demand (e.g., notebook PC chips). Indeed, even the panned dividend tax cut is having the desired effect as companies increase or issue new dividends and spur more investment in America. Too many focus on jobs as the litmus test. Jobs are very important; as one congressman said, if you are unemployed the jobless rate is 100%. Still, it is lagging, and to argue the economy is not improving because joblessness is not completely ignores reality and history. Other parts of the economy have to improve before new jobs are created. The above listed activity indicates that the groundwork is being laid.
After hours Intel reported its best year over year growth in 3 years. The Chinese stock market is up 30% in dollar terms. This was even when SARS was supposed to decimate chip and PC orders and implode the Chinese economy. Remember how Stephen Roach stated back in April that SARS was going to plunge the world into global recession? At the time we said that SARS was not the issue, and it has turned out to be a non-issue. The point: don't get caught up in the fancy of the moment, in the latest gloom or the overly optimistic. Economic patterns and market moves tend to stick to historic norms with some moves outside the standard deviation from time to time. Right now there is still economic risk, but the historical patterns are thus far holding up quite well.
NY PMI further sign of improvement.
For the third month in a row the New York PMI was better than expected, coming in at 22.6 versus the 20.0 expected and 27.6 in June (revised up from 26.8). While the national number has been lagging, the key regional reports are steadily improving. The national number, a compilation of all of the regions, typically lags the individual leaders.
Retails sales top expectations.
June sales 0.5%, better than the 0.4% expected and a leap over the 0.0% for May (originally reported at 0.1%). That is the largest increase since March and shows a nice snapback from the war months of April and May. Take out some slumping auto sales and retail sales jumped 0.7% versus the 0.3% expected and 0.1% prior.
Retail sales are much ballyhooed. After all, the big debate about tax cuts was consumer incentives versus business incentives. Fortunately there was a mix with more emphasis on the business side, the side that was dormant all during the recession. The consumer could have kept on consuming for years and never put a dent in the current business overcapacity. Not until businesses were given the incentive to invest again when perhaps no investment was needed based on demand did we start to see some business activity. Still, Greenspan and the White House were pretty much beat about the head and shoulders Tuesday during the congressional testimony. For some reason there is the belief that a growing economy won't solve the problems we will face when the baby boomers hit the wheelchairs. The ONLY thing that will solve the problem is a growing economy, and giving consumers another $600 to spend at Best Buy was not going to solve the overcapacity problem.
THE MARKET
Stocks were up again then down again as the intraday action has turned to a more bearish stance after Nasdaq and the smaller cap indexes broke higher but could not extend the breakout. They are now coming back to fill that gap and test the breakout even as SOX is butting up against the breakout point. Wednesday will give us a very good indication of the market's bias as Intel's earnings made a statement: even in the historically slower Q2 it grew its earnings at the strongest pace in three years as margins soared. These earnings are a signal of growth with substance. Many will be quick to argue that Intel is overvalued based on its P/E ratio, etc. We are not talking about that. We are talking about real growth in business activity that is the key to economic recovery, eliminating this ludicrous political argument about budget deficits, and yes, making valuations look better than they do now. Real growth cures almost all ailments, so the key is to focus on whether there is growth or whether this is just smoke and mirrors. The results we have seen thus far indicate there is some real growth ongoing.
Thus the key remains the same: will the SOX be able to make a breakout on the INTC news? Will Nasdaq and the small and mid-cap indexes use this fill of the gap on Tuesday as the only test they need before continuing higher? As we said over the weekend and Monday, the leading indexes (Nasdaq, small cap, mid-cap) are ready to move if the SOX can join in the break higher.
Market Sentiment
VIX: 21.84; +0.43
VXN: 33.95; +0.06
Put/Call Ratio (CBOE): 0.54; -0.08. Hitting quite low levels for what has been the norm the past year.
Nasdaq
Gapped higher again but gave the move back yet again, though volume was lower indicating there was no dumping of tech stocks.
Stats: -1.61 points (-0.09%) to close at 1753.21
Volume: 1.933B (-2.54%). Volume backed off on the selling, just what you want to see when stocks are giving back some gains.
Up Volume: 779M (-788M)
Down Volume: 1.134B (+737M). Fairly evenly matched volume ratio shows there was no real tech stock trashing.
A/D and Hi/Lo: Decliners led 1.23 to 1
Previous Session: Advancers led 1.78 to 1
New Highs: 298 (-137)
New Lows: 3 (0)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Once again tech stocks were higher out of the gate but they gave back the gains and a bit more. On the low (1742) Nasdaq just about filled the gap up on Tuesday and then managed to rebound some toward the close. After surging 150 points in a week up to 1750, trade has turned choppy, gapping down, gapping higher, rallying just to give back gains. That is not the best action to set up the next move higher and is indicative that the buyers and sellers are relatively evenly matched here as the index tries to digest those gains. Typically a stock or index will calm down and then break higher, and with Nasdaq 23% over its 200 day MVA this choppy trade is not atypical. A full test of the 10 day MVA (1717) on the low would be better, but Nasdaq may try to rally from here yet again with the Intel earnings. If SOX can breakout that is key for a near term rally to continue. That does not do a lot for the overall condition of the index as it will have to correct back, most likely as summer winds down and the market gets into late August and September.
S&P 500/NYSE
Rallied higher and turned back to test the 10 day MVA on rising volume as it continues to struggle with the recent June and July highs.
Stats: +0.2 points (0%) to close at 1000.42
NYSE Volume: 1.506B (+6.05%). Volume rallied on the selling, moving back above average and showing some distribution in the large caps as they continue to fight with the recent highs.
Up Volume: 514M (-412M)
Down Volume: 992M (+495M)
A/D and Hi/Lo: Decliners led 2.01 to 1. Declining breadth has started to outpace advancing breadth. This indicates less strength in the market overall.
Previous Session: Advancers led 1.52 to 1
New Highs: 235 (-126)
New Lows: 14 (+10)
The Chart: http://www.investmenthouse.com/cd/$spx.html
Large caps started higher as well, back up to 1009 on the intraday high before turning lower. On the low they tested and held the 10 day MVA (996.65) before a modest late session rally. Given the narrow trading range and using the short term MVA as support, the index is really not in that bad of condition. It remains below the recent highs (1015), but is trying to make another higher low. If Intel can break it higher and the move holds on volume, it has some room to run after this 6 week lateral move.
DJ30:
Stats: -48.18 points (-0.52%) to close at 9128.97
Volume: 1.506B (+6.05%)
DJ30 continued to struggle below recent resistance as well (9250), trying to rally (9238 on the high) but fall back to close right on the 10 day MVA. DJ30 was plagued by MO again as an appeals court reversed the lowering of its appeal bond. Blue chip volume was up on the selling as the index made a slightly lower high. DJ30 is moving laterally, holding 9000 on the low and 9250 on the high. Not a bad lateral move though it is showing some distribution sessions as it works laterally. INTC will help, and IBM reports Wednesday and MSFT Thursday. Make or break time.
WEDNESDAY
The Intel news will dominate the early action. It was leading techs higher after hours as its gross margin growth was impressive and it defied historical norms with a stronger Q2. Once again the market will have some good news to chew on and try to rally off of.
In addition the consumer price index will be out before the open. Prices are under the microscope as investors and economists look for signs of reflation as opposed to deflation. The Intel numbers help answer some of that question, but the market is always searching for the next grain of information.
Right now we more or less have a 'Missouri' attitude: we want to be shown that stocks can rally farther from here. Nasdaq is 23% over its 200 day MVA, a point where it starts to struggle. The choppy action the past week shows that struggle ongoing. The issue is whether SOX can breakout and help fuel a further run before the market heads into a more significant pullback than the short 3 to 4 session declines it has given thus far on the run. As we have noted, SOX is at a breakout point from its 7.5 month cup with handle base. If it can breakout and hold that would give Nasdaq support for a further move as it would break stocks such as NVLS, KLAC and others out of their similar patterns.
Thus we want to see any break higher on the Wednesday open hold up well. Again, a show me attitude. Problem is, if stocks break to the upside again on the open they are difficult to enter. Will the move hold or will there be another pullback? We always prefer a softer open that builds, but if the market is set to run on the Intel numbers, there won't be that softer start. We will look at partial positions on solid stocks on an early run, and then see how the moves pan out.
Support and Resistance
Nasdaq: Closed at 1753.21
Resistance: 1760 (May 2002). 1800.
Support: The 10 day MVA (1717). 1700 (Feb 2002 low). 1685 (June intraday high). The 18 day MVA (1690). 1646, the early June high. The exponential 50 day MVA (1613). 1600 to 1595 (June 2002 closing high). The mid-May high (1554).
S&P 500: Closed at 1000.42
Resistance: 1003, the early June closing high. June closing high at 1011. The June intraday high at 1015. Then 1050.
Support: The 10 day MVA (996). The 18 day MVA (993). 975 (December 1997 peak). The 50 day MVA (969) and 965 (August 2002 peak). The mid-May high (948) and 935 (November and January peaks).
Dow: Closed at 9128.97
Resistance: 9236, the early June intraday high to 9250. 9352, the June high. 9500 (June 2002 lows).
Support: The 10 day MVA (9127). The 18 day MVA (9107). 9000 is some psychological and price support. 8980 is the neckline in the short head and shoulders pattern. The 50 day MVA (8928). January high (8870). The mid-May high at 8743
Economic Calendar
7-15-03
NY Empire State PMI, July (8:00): 22.6 actual, 20.0 expected, 27.6 June (revosed from 26.8).
Retail sales, June (8:30): 0.5% actual, 0.4% expected, 0.0% May (revised from 0.1%).
Ex autos (8:30): 0.7% actual, 0.3% expected, 0.1% May.
7-16-03
CPI, June (8:30): 0.2% expected, 0.0% May.
Core CPI (8:30): 0.1% expected, 0.3% May.
Business inventories, May (8:30): 0.0% expected, 0.1% April
Industrial production, June (9:15): 0.1% expected, 0.1% May.
Capacity utilization, June (9:15): 74.3% expected, 74.3% May.
7-17-03
Housing starts, June (8:30): 1.750M expected, 1.732M May.
Building permits, June (8:30): 1.790M expected, 1.803M May.
Initial jobless claims (8:30): 425K expected, 439K prior.
Philly Fed, July, (12:00): 7.0 expected, 4.0 June.
7-18-03
Preliminary Michigan sentiment, July (9:45): 91.0 expected, 89.7 prior.
SEMINARS ON CD
http://www.stockseminarsonline.com
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End part 1 of 2
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world stock market
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