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us stock market, stock market report
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9/27/03 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Friday: SOX
Buy alerts issued: None issued
Trailing stops issued: GPRO; IMA; NFLX; LIFC; SNIC
Stop alerts issued: MRBA; SOHU; NUAN
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:
- Leading Nasdaq now at the 50 day MVA.
- Q2 GDP revised higher yet again as Michigan sentiment sags again.
- Market preparing to bounce this week, but just may be just in relief.
- Subscriber Questions
Third day of selling leaves Nasdaq, SOX, SP400 standing alone at the 50 day MVA.
Stocks followed through to the downside Friday. After a volatile session where stocks tried, albeit lamely, to rebound from the prior selling, the indexes turned over and again sold to close at session lows. Volume was lighter, breadth remained poor. Stocks of all shapes and sizes were falling with many leaders breaking through their 50 day MVA, a key support level. Indeed, SP500, DJ30, RUTX, and SP600 all sliced through the 50 day MVA with almost surprising ease. That leaves Nasdaq, the market leader now, at the 50 day MVA with the company of the SOX and the mid-cap index. Last week we said it would boil down to how Nasdaq handled the 50 day, and now it is going to give us a front row view.
We don't want to give the impression that Nasdaq showed any kind of backbone. It dropped 6% on the week, its worst weekly showing in 17 months. That was back in May 2002 when Nasdaq was in the middle of the nasty slide from January 2002 that ended in the bottom on October 9. Nasdaq was back to 25% above its 200 day MVA, it has not taken much rest this year, and it is late September. It tried to extend the gains early in the week, but it failed. The September/October dip is here, and the question is whether it deepens with Nasdaq breaking the 50 day as well or if it can slide laterally and form a nice consolidation along the 50 day MVA and March up trendline. We think the market will try to bounce in relief next week after three hard selling sessions, and though it may be tempting to move in big with it, we don't think it will surge back up with guns blazing for the next long leg higher. It needs a bit more work than just a 3 day dip.
THE ECONOMY
Q2 GPD revised higher to 3.3% from 3.1%.
Economic growth continues to surprise to the upside. While some point to the most recent economic reports and say the momentum is flagging, such a conclusion is inaccurate. Just as a stock cannot post higher volume each session, the economy cannot sprint month after month after month. The torrid pace will cool then heat back up just as a stock market rally will spurt ahead and then rest to set up for the next move higher. The trend is the key and the economic trend continues to rise at a faster rate overall.
Michigan sentiment slips again.
The final revision for September fell to 87.7, less than the 88.5 expected and 89.3 in August. Even with the dip it is still above its 12 month average. Both present conditions and expectations fell. The problem with sentiment is that too much emphasis is put on it at intermediate levels. Only at 'extremely extreme' levels does consumer activity change to reflect swings. In other words, sentiment has to fall below even the 9 year low of 77.6 in March before the Iraq war started before consumers will start to show adverse effects.
Will the jobs situation really impact consumer spending?
Even when sentiment was at 77 in March consumers were still spending. They spent all the way through the recession. They spent in spite of the recession. They spent over the holidays. They really spent when the war ended. They are still spending now. Many say the supposed lack of job creation will impinge upon retail sales as we head toward the end of the year. We don't believe it will because we don't believe the jobs report accurately reflects the status of most workers. As we discussed last week, the numbers don't add up. In August 137.6 million people said they had jobs. When the recession 'officially' started in March 2001, 137.7 people said they were employed. A statistical dead heat. Employers answered 129.8 million in August and 132.5 million in March 2001, a difference of 2.7 million.
Are those 2.7 million still out there or have they shifted to other areas of employment such as self employed, temporary, contract, all areas that are not picked up by the employer survey. With the trend over the past decade to shift to temporary or contract workers for specific projects or when uncertain as to economic conditions ahead, this leaves a gaping hole in the employer based figure that is quoted on a daily basis by those wanting to divert attention from the irrefutable economic data. Just as the one-sided, negative reporting on Iraq conditions makes it look as if it is utter turmoil when that is far from the case, focusing on the employer report distorts the jobs picture specifically and the overall economic recovery as well. As one reporter we talked with put it, a few hundred demonstrating for Hussein in Baghdad, a city of millions, is even less of an event than he witnessed in Seoul Korea in the 1980's when thousands of students protested downtown: in a city of 9+ million (at the time), the protests barely impacted business as usual. The news reports showing only the rioting up close took it out of context and did not convey the small impact they had on the city. Certainly we should be concerned about the attacks on our troops from what are apparently Al Qaeda inspired or led guerillas, but the attacks need to be put in context of the 3100+ capital improvement projects from schools to soccer fields to sewer to oil field facilities that are being successfully promulgated.
In sum, based on what we are seeing in the economy and the job market itself (temp, contract, and new businesses rising), we are not too worried about consumers ceasing their spending or even curtailing it much.
THE MARKET
The market ended the day on the session lows, and though it trended lower throughout the session, it was quite volatile intraday. While subtle, that was a change from Wednesday and Thursday where the indexes, after the early morning chop, tanked all session long. After two days basically straight down the index started to bounce up and down. As the leading Nasdaq and the SOX are now at the 50 day MVA after three hard selling sessions, we anticipate a relief bounce early this week.
Many leaders are at the 50 day MVA and quite a few have broken that level. This is the first real round of heavy leadership selling in months. It is clear that institutions are booking gains on them and other areas, and as we noted Thursday night, that can really escalate when they rush to get their ahead of the crowd. Thus volume spiked on the selling Wednesday and Thursday. It was down Friday, and with the intraday volatility and Nasdaq at the 50 day MVA, that is another indication a relief bounce is ahead.
We don't necessarily believe any bounce from here will start a new leg up at this time. It might; this market has shown amazing power. With leaders breaking down hard after very long runs, however, it looks as if it needs to work into October and maybe then it will be ready toward the end of that month. Thus, when we get the inevitable relief or reflex bounce from the selling, it would be a time to unload marginal positions and to look for downside plays to further set up. Indeed, we let some plays run Friday that held the 50 day MVA or other support because we believe we will get a better exit point in the near future. After that, however, we think the market will move back down to further consolidate the run to this point as the additional selling for Q3 and year end is concluded. The breakdown in many leaders is one of the governors on a faster rebound. They will have to turn on a dime, and many are extended so even if they do rebound they will be subject to being overextended in short order.
Market Sentiment
Last week we discussed how many commentators appearing on the financial stations were now saying 'you know, we were bullish back in March' as they discussed how strong the market was, etc. We noted that was a dangerous change. These folks were bullish to the bitter end in the bear market and converted just before the bottom. After almost a year of rallying they have now switched sides again and are telling us how they were bullish at the bottom but just did not let us know then. While bullishness has been high for months, this was a shift in what we had been hearing. Almost on cue the market started to sell off.
The waters are still dangerous judging from analyst views. Friday we heard catch phrases such as how this pullback was 'needed' and how it was a 'buying opportunity.' We believe it is needed and overdue and that it will yield a buying opportunity. Looking at the patterns right now, however, it could take a few weeks to recover from this selling before the needed pullback yields the buying opportunity. We do believe this is not the end of the upside, but with the vigor of the selling you don't want to step in front of falling stocks but instead let them form back up and show the accumulation again that indicates the big money is ready to move back in after locking in gains for the year end.
VIX: 22.23; -0.03
VXN: 30.88; +0.23
Put/Call Ratio (CBOE): 0.98; +0.14. The ratio is getting to the point where it can indicate a market bounce. We are not anticipating this to be the recovery bounce, but when the ratio got over 0.90 on the close during this rally it has started rebounds.
NASDAQ
Heading toward a collision with the 50 day MVA on poor breadth but lighter volume.
Stats: -25.17 points (-1.39%) to close at 1792.07
Volume: 1.851B (-9.7%). Volume was lower for the second session though still above average. After spiking sharply Wednesday when the selling started, it has backed off. This indicates the intensity is wearing off a bit and with the proximity to the 50 day MVA after a 3-day 110 point drop, it looks ready for a reflex bounce.
Up Volume: 181M (-198M)
Down Volume: 1.658B (-2M)
A/D and Hi/Lo: Decliners led 2.87 to 1. Breadth has been ugly on the selling, a clear indication along with the higher volume that this is indiscriminate quarter and year end selling to book profits for the reports.
Previous Session: Decliners led 2.79 to 1
New Highs: 67 (-35)
New Lows: 11 (+5). This is more on the positive side. When the market broke higher in August and early September new highs shot higher as stock after stock broke out of solid bases. That is a positive sign as it shows the market is advancing across the board and making substantial progress as stocks clear resistance. On the downside, it is good to see new lows barely expanding even after three days and 110 points in losses. That means even though the market is selling hard, stocks are not breaking lower below support in droves.
The Chart: http://www.investmenthouse.com/cd/^ixq.html
110 points in three sessions, and Nasdaq is at the critical level of the 50 day MVA (1785) with the March up trendline not far below (1755) along with the July high (1776). Such a steep plunge and three layers of support indicate a bounce this week. The 18 day MVA (1844) is the likely resistance on the bounce.
S&P 500/NYSE
45 points down from its high and undercutting the 50 day MVA Friday on continued above average volume.
Stats: -6.42 points (-0.64%) to close at 996.85
NYSE Volume: 1.427B (-6.41%). After plowing lower Wednesday on a big volume spike and Thursday's strong volume, Friday was almost refreshing as volume backed off as the large caps undercut the 50 day. Almost.
Up Volume: 396M (+3M).
Down Volume: 1.006B (-88M)
A/D and Hi/Lo: Decliners led 1.68 to 1. Breadth improved. Even though the small caps have tanked below the 50 day MVA, the mid-caps are holding their 50 day, and that is keeping the overall breadth from expanding.
Previous Session: Decliners led 1.9 to 1
New Highs: 42 (-34)
New Lows: 16 (0). Similar to Nasdaq, no real new low growth even though SP500 undercut the 50 day MVA. That is a positive.
The Chart: http://www.investmenthouse.com/cd/^spx.html
Undercut the 50 day MVA (1004) as the large caps continued the 45 point romp lower. 21 points from the bottom of the summer range (975), and we feel it is going to make it to that level before it is ready to return to the upside. It needs to slow the pace somewhat and move more laterally, but it looks as if it will be well into October before it would be ready.
DJ30:
Stats: -30.88 points (-0.33%) to close at 9313.08
The blue chips undercut the 50 day MVA (9354) Friday as Dow 30 volume rose, a third straight session of much stronger, above average trade. The next support level is 9285 (July closing highs) to 9250. That is the point where we think there will be a relief bounce before the index continues a pullback to test the bottom of the range at 9000 on into October.
THIS WEEK
Economic data flows again this week and there is also the potential of earnings warnings though they are running 7 to 1 favorable over shortfalls. The week has some big guns, Chicago PMI, ISM, factory orders, and the September employment report. This time around expectations have been adjusted to more job losses as opposed to last month's thrashed expectations of net job gains. Again it will be interesting to see how the non-farm payroll employers report compares to the individual survey response.
Unless there is a big upside surprise on the jobs report the data won't sway the market much. It still needs to slow the descent, make a relief bounce and then work lower and laterally to build the foundation for the next move. This drop was precipitous and on high volume. After the distribution it needs to slow and then work into some steady accumulation. Then it will be ready to move. That is the best case scenario to set the foundation for the next run, but this market has been incredibly resilient. With money continuing to flow into funds and some institutions wanting to get in on the action that they missed, there will be buying on the dip that sends stocks higher.
If it occurs on strong volume we will be looking at leaders returning from a 50 day MVA test on volume. While we believe any bounce will be a relief bounce that will fall back again, we would be willing to move in on some leaders that have tested the 50 day MVA or other support and are moving back up on volume. Leaders move ahead of the rest of the market and we want to be in them when they start to move again. For other upside, there are winners still forming in the medical and drug sectors. These stocks were forming bases as the rest of the market made the last move higher. The pullback last week helped several form the last part of their bases. For downside we will look for stocks that have breached the 50 day MVA or other solid support and test the breakdown on the market rebound. When they fail we will move in for downside action on those that are breaking down.
This is the time to be patient and let the market and plays develop. We have been closing positions where the stock has been breaking key support; they can rebound right back, but when the support is broken on volume that is a sign that big money is moving away from it for now and it can tumble much further before it recovers. As for others, if they held that support or very near it, we kept the play open as we anticipate a rebound that could bounce them up off that support and either give us a better exit point or continue to move higher if that was all the test the stock needed. If the relief bounce next week fizzles and reverses on some stronger volume again, it will be time to take those off the table as well and move into those downside plays that have set up below resistance for a quick downside burst.
Support and Resistance
Nasdaq: Closed at 1792.07
Resistance: The August high 1812 and 1814. The 18 day MVA (1844). 1860 to 1865. 1889 (early September highs). 1930 - 1935. Then 2000 to 2050.
Support: The 50 day MVA (1785). The July high (1776). The March/August up trendline (1755).
S&P 500: Closed at 996.85
Resistance: The exponential 50 day MVA (1004). The top of the summer range at 1015. The 18 day MVA (1015). 1030 to 1032 (early September highs) may act as some resistance. After that 1050. Then 1080 from February 2002 lows. 1100 to 1150, the early 2002 double top.
Support: 975 (December 1997 peak). 965 (August 2002 peak).
Dow: Closed at 9313.08
Resistance: The exponential 50 day MVA (9354) and 9353 (top of summer range). 9500 (June 2002 lows) is the top of the recent summer range). The 18 day MVA (9467). 9609 (early September highs) make act as some resistance. 9735. 9800 (April and May 2002 lows).
Support: 9250 to 9236, the early June intraday high. 9000, the bottom of the summer range.
Economic Calendar
9-29-03
Personal income, August (8:30): 0.3% expected, 0.2% July.
Personal spending: 0.8% expected, 0.8% August.
9-30-03
Consumer confidence, September (10:00): 82.0 expected, 81.3 August.
Chicago PMI, September (10:00): 55.5 expected, 58.9 August.
10-1-03
ISM Index, September (10:00): 55.0 expected, 54.7 August.
Construction spending, August (10:00): 0.4% expected, 0.2% July.
10-2-03
Initial jobless claims (8:30): 395K expected, 381K prior.
Factory orders, August (10:00): 0.6% expected, 1.6% July.
10-3-03
Non-farm payrolls, September (8:30): -30K expected, -93K August.
Unemployment rate, September: 6.2% expected, 6.1% August.
Hourly earnings, September: 0.2% expected, 0.1% August.
Average workweek, September: 33.7 expected, 33.6 August.
ISM Services, September (10:00): 63.8 expected, 65.1 August.
End part 1 of 3
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