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us stock market, trend trading stock
Begin Part 2 of 2
THE MARKET
There is no doubt after Friday and today that the indexes did not continue their string of higher highs as each one turned down well shy of the May peaks. The big question will be whether they make another higher low and start to move back up, test the recent lows, or break down below them. The Nasdaq still has a way to go before it hits the previous low, and it is trying to hold at the 50 day MVA. The Dow and S&P 500 are more or less at the previous lows, though the Dow has a bit of room before it hits its 50 day MVA and the down trendline.
The lower highs are somewhat bearish and could turn for the worse if the recent lows are taken out. The short term mood is negative as the focus is on earnings warnings for a quarter that was already baked into the cake as being down. Thus we could see another down session before we see any upside action.
Still, the price and volume action remains good and we saw a lot of stocks as well as all of the indexes finish well off of their lows for the session. The fact that these bounces occurred at support levels is encouraging. What we have seen is a sideways trading range that until now was working its way higher. The indexes would run up 4-5 days, run down 4-5 days, and then repeat. The lower high this last round does not mean that the market will necessarily fall. It means to us we are looking at more of a trading range for now until investors can get over the Q2 warnings and once again focus on the future as they were doing in April and May.
Overall market stats:
VIX: 22.74; +1.33. Some pretty decent move in volatility now that the selling spanned more than one session. Still at the low end of the range indicating continued complacency.
VXN: 54.48; +1.69. After it too rose slightly on Friday's selling, it moved solidly higher today on the same selling activity as experienced Friday. A little, but not a lot, of fear creeping back in.
Put/Call ratio (CBOE): 0.70; -0.02. Put activity remained roughly even with Friday, and it is continues to track in the upper end of the range. This signals the opposite of the VIX, i.e., that there is anxiety and some fear out there. It has touched down to 0.47 since the March and early April spikes over 1.0 (those are tell tale signs of a potential turn coming), but it has been quick to move higher when the selling starts. That has usually led to the turns back up as we have seen in this trading range.
NASDAQ:
Stats: Down 44.32 points (-2.0%) to close at 2170.78.
Volume: Volume remained meager at 1.422 billion shares (-1.2%). Down volume was well in front at 1.129 billion to 278 million shares. The selling was again on lighter volume, much lighter than the upside days of last week. That is still good price/volume action and that indicates that we will see some of the typical action in this range: up a few days and down a few days.
A/D and Hi/Lo: Decliners led again at 1.58 to 1 (2.06 to 1 Friday). Some improvement there. New highs rose to 103 (+5) as new lows rose to 46 (+10).
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq never threatened positive territory today. It was a down day all the way. It did tap just below its 50 day MVA on its low (2150.75; 50 day at 2155.50) as it formed a double bottom for the session and rallied up 20 points to the close. Not overly impressive, but not bad at all for a selling day. We had lighter volume, a tap at support, and a move up from there into the close. Does it mean a whole lot? Well we have seen the Nasdaq move right the 50 day MVA the last two times it approached it, finding the bottom of its range instead at the 2050 to 2075 levels. In other words, we may get further downside action here before we get upside action. But, based on what we are seeing, we are pretty certain the index will turn back up in this range and again make another run back up to 2250. The lower high does have some negative implications, but as we said earlier, we feel this is more a confirmation that we may get more of a trading range for a bit rather than a selloff. The price/volume action does not indicate a big selloff in the works.
Dow/NYSE:
Stats: Down 54.91 points (-0.2%) to close at 10,922.09.
Volume: NYSE volume moved higher to 857 million shares (+18%), but given Friday's trade closure, this is no comparison to make. More germane are the gains on last Tuesday and Thursday on much higher, rising volume than any of the selling seen in the past week. Down volume led 609 million to 237 million to the upside.
A/D and Hi/Lo: Decliners continued to lead 1.45 to 1 (1.32 to 1 Friday). New highs rose to 109 (+20) on the selling and new lows rose to 32 (+6).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow continued to move once again below 11,000, proving that the 11k mark is not as important as the 10,800 to 10,750 level. It too touched down lower (10,871.34) before it turned and moved up just over 50 points to the close. As with the Nasdaq we like the recovery at the close as it moved up after testing close to the bottom it tapped 7 sessions ago (10,835.49) before it started a nice little climb higher. It may have a bit more to travel lower in its selling as well as the 50 day MVA is below at 10,802.06 where it has converged with the down trendline connecting the January 2000 all-time high and the September 2000 high. The lower high is more pronounced on the Dow than the Nasdaq as the Dow fell well short of its recent May top (11,345.72). Thus, the test of the 50 day MVA and the down trendline is key. If it fails the Dow is looking lower, but not terribly lower. The price/volume action has improved over the past few weeks, and that keeps things on a more even keel for the trading range to hold.
S&P 500: The S&P is right at support, tapping 1249.23 on the low and rallying back to close at 1254.39, just above the 50 day MVA (1253.52). It does not have as much maneuvering room as the Nasdaq and the Dow; that can be a good thing if it is ready to move higher, or a bad thing if it is inclined to continue selling. Broken support tends to become resistance, but it does have some room down to 1245, the low it hit on the last move down. We like the way it too closed up off of the low, rising 5 points in the last hour. That bounce up off the 50 day MVA mirrors the action of many stocks we saw today and along with the decent price/volume action we have seen of late it indicates some upside. Question is, with the sharply pronounced lower high (1286.62 versus 1315.93), holding the line in this range is going to be critical. That is why we are looking at a possible put on the OEX if it cannot hold that 50 day MVA.
Stats: Down 10.57 points (-0.5%) to close at 1254.39.
Volume: NYSE volume moved higher to 857 million shares (+18%), but as noted above, the comparison is not accurate as the NYSE was closed for quite some time, and some issues never opened for trading.
The Chart: http://www.investmenthouse.com/cd/$spx.html
Support and Resistance Levels
Nasdaq: Closed at 2170.78.
Resistance: 2250.
Support: The 50 day MVA is at 2155.50. The recent low before the last move up was at 2077.98. Before that it was 2052.14. We look for one of these levels to hold for the next move back up in the range.
S&P 500: Closed at 1254.39.
Resistance: 1270. Some resistance at 1300, but 1315.93 is the recent high it needs to plow back through.
Support: 1270 did not hold and now its back is against the wall at 1250. The 50 day MVA is at 1253.52.
Dow: Closed at 10,922.09.
Resistance: 11,000 could act as some resistance, but after its break above that level a month ago, it has traded on both sides without much hesitation. Then 11,196.53 (the last top). Then 11,350.
Support: 11,000 did not hold. The down trendline and the 50 day MVA have converged at 10,802.06.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
6-13-01
Export Prices ex-ag., May (8:30): 0% versus 0% prior.
Import Prices ex-oil, May (8:30): -0.5% versus -0.5% prior.
Retail Sales, May (8:30): 0.3% versus 1.1% prior.
Retail Sales ex-auto, May (8:30): 0.4% versus 0.8% prior.
6-14-01
Initial Claims, 6/9 (8:30): 425K versus 432K prior.
PPI, May (8:30): 0.3% versus 0.3% prior.
Core PPI, May (8:30): 0.2% versus 0.2% prior.
Business Inventories, April (8:30): -0.1% versus -0.3% prior.
6-15-01
CPI, May (8:30): 0.4% versus 0.3% prior.
Core CPI, May (8:30): 0.2% versus 0.2%.
Industrial Production, May (9:15): -0.3% versus -0.3% prior.
Capacity Utilization, May (9:15): 78.0% versus 78.5% prior.
Mich Sentiment-Prel., June (10:00): 91.0% versus 92.0% prior.
SUBSCRIBER QUESTIONS
Q: When a stock does break out on strong volume and makes a 10-15% run in 2 days it's normal for it to pull back some or even test the breakout point isn't it before it makes another move or consolidates? Also is it possible for a stock to sell off heavy below the breakout without any bad news on the stock or if the market looks healthy? I've heard a stock can pull back 20-25% after a run. Is this 20-25% based on the stock price or the difference from the breakout point and the amount the stock has gained?
A: Yes it is 'normal' for a breakout stock to test the recent breakout. A stock can come all the way back to the actual breakout point. Not all stocks do this; on the strong leaders it is a 50-50 proposition. Still, even the strong stocks will come back a bit after the initial surge as shorter term traders take profits. The biggest moves often occur after this test, but sometimes stocks just do not come back. Thus we can buy some on the breakout, and if we get a test, buy some more when it starts back up or takes out the breakout high.
Stocks can sell off after the breakout, moving back below the breakout point even without bad news. What this means is that the base simply did not weed out all of the sellers. A base can look great, but then it simply fails. We can rest assured that this will happen from time to time; if it does, we simply close out the position and look for the next one. Odds are we will hit more winners than losers playing solid breakouts from solid bases.
As for the percentage a stock pulls back after a run, that is typically called retracement, and the amount varies from stock to stock. Initially on a run a stock will retrace 25% to 30% of each move higher as it builds higher highs and higher lows. It usually gets 4 to 5 runs out of a breakout or along a trendline before its starts to falter and then go back to test a lower trendline or support level. The fourth and fifth bounces up off the trend tend to show more volatility and can retrace 50% of the last move up. When we see that fourth bounce up, we usually do not play the fifth as it will be much more volatile and will often lead to a test of that lower support level (often the 50 day MVA). We will wait for that test and then pick it up off of that level for the next run.
We cover all of this in detail in our technical analysis seminars that will start again in July, and it is a real eye opener to understanding stock movements.
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:
Jeff Whitney
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Good Investing!
Jon Johnson and The Stock Split Report Staff
All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Online Investment Services, LP or its paid consultants and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. We are not licensed or registered in the securities industry. The information presented herein and on our related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolio of Partners of Online Investment Services, LP or its paid consultants may, in some instances, include securities mentioned herein and on our web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors.
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us stock market
trend trading stock
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