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world stock market, us stock market
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10/11/03 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Friday: None issued
Buy alerts issued: None issued. Quiet session.
Trailing stops issued: None issued
Stop alerts issued: None issued
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 holds gains to close the week but misses a breakout opportunity.
- Retail upgrades abound Friday on heels of sales numbers as trade deficit shrinks.
- Resilient market holds its trend near September highs, looks ready for that near term higher low.
Market holds status quo for next week.
The action was going to be iffy. The market tried a breakout over the September highs Thursday but reversed and gave back that resistance. It was a promising start to a breakout, but as noted earlier in the week, to continue the move at that point would have been a huge showing of strength. In the end the buyers simply did not have enough strength to take it to the next level. The solid volume early rally turned into a higher volume reversal that gave back the resistance taken in the morning. Such action after a run higher shows nervous buyers and some ready sellers, and it can start a selloff.
That background already set an uphill climb for stocks and then GE came out with a lukewarm outlook with its inline earnings report. The economic reports had little impact. Still, stocks tried to make a move, running higher early with SP500 testing right at the September high. Again stocks ran out of steam at that resistance. Unlike Thursday there was no big reversal as stocks held in an unusually tight range, refusing to give back the gains, but unable to break convincingly higher over the September highs.
In the end the market continued to show the same resilience that has kept it trending higher since the March breakout, and particularly the past three months as volatility rose along with some distribution. Big money refused to sell stocks just purchased, but not enough new money to send it higher after a 100+ point run on Nasdaq off the 50 day MVA. Thus the market heads into the week at the same crossroads: break higher over the September resistance or pullback, regroup, and make another run.
THE ECONOMY
Retail upgrades abound Friday.
After retailers reported much better than expected September results the analysts were out Friday with a bevy of retail upgrades. Johnny on the spot as usual. It makes you really wonder about sector analysts and their 'fundamental' research. If they had their finger on the pulse of the sector, doing channel checks, store checks, customer traffic gauges, etc., why didn't they pick up on this? Our own informal surveys in August and early September showed a big consumer shopping surge as we contemporaneously reported. It was clear the consumer was consuming.
Despite the actual results that confirmed what we were seeing, many retail analysts expect sales in the holiday season to fall off pace to a 4.7% level versus the 5.8% gains seen in September. Why? Other than being incredibly pessimistic, they view the economic stimulus as a transient, one time event. They view the child tax credit checks as the only tax stimulus. They view refinancing as a one-time shot where people cash out and spend it all. As with their views on September sales, they are wrong. The tax cuts were to the marginal rates as well. That means each month taxpayers will take home more money. Some won't change their W-4, but that only means they will get a lot more money back early next year. As for mortgages, the experts seem to forget that lower rates equal lower payments even if homeowners cash out their equity and have already spent it. Each month their payment is lower because of the lower rate, and again, that means more money flows through to the discretionary spending line. These are not one-time wonders, but a steady month after month addition to what consumers can spend. And the one thing we know about consumers as borne out by the recent numbers, unless things are horribly dire for the economy, they will spend.
Thus we give little weight to the projections for slower sales growth in the holiday season than in the back to school period. Last holiday season was better than expected, and even with that there is a lot of pent up demand among consumers. They have been under the shadow of 9-11 for over two years and they have a desire to celebrate life a bit more. They started to travel more this past summer as the airline and resort numbers show. They are going to spend more this holiday season as they smell the roses a bit more. We may live under the threat of terrorist attacks each day, but we are adjusting, realizing you need to enjoy what we have and not succumb to the threat and hide indoors. Q4 will see solid holiday sales, an increase in factory production and inventory building, and an increase in job creation. There will also be continued business investment as businesses complete all of their purchases to take full advantage of the expensing and other benefits of the tax package. We like the pessimism as that leaves room for plenty of upside when the better numbers hit.
Factory jobs leaving the US? Hardly. They were already long gone.
One thing you hear each day in the ranting about the job market is how the US is losing manufacturing jobs to China. That has triggered a lot of finger pointing rhetoric on the campaign trail about the need for trade barriers, required safety and environmental standards for other countries, etc. This idea is simply wrong. You must remember the complaints in the 1980's about the US losing jobs to Mexico and other central and south American countries. The maquiliadoras, the assembly plants in Mexico and elsewhere, have been used for two decades now to assemble goods formerly made in the US. The parts are shipped to Mexico where they are assemble by lower wage workers. Then they are shipped back to the US. "Hecho en Mexico" is a familiar phrase on many electronics. A lot of the factory worker loss is being incurred by the third world countries fighting with one another to keep these jobs at home. Manufacturing has been on the decline in the US for over thirty years for the very same reasons being cited now: it is economics in the form of labor costs. That is why the manufacturing sector in the US makes up a smaller and smaller percentage of our overall economy the past thirty years EVEN during the boom times of the 1980's and 1990's. Many will disagree, but the statistics say this is more of a political issue during an election campaign than a new trend threatening US industry.
Trade balance falls for fifth consecutive month.
The deficit was $2B+ less than expected, and again that gave heart to those favoring a weaker dollar as they stated the lower dollar was obviously working. It has been working as exports have been rising while imports falling on a total value basis. That helps the current account and keeps anxious foreign investors from bailing ship and selling dollar investments in favor of something else and thus starting the cycle of inflation caused by excess dollars coming home yet deflation of asset values as US assets are sold off as discussed in the Thursday report.
Problem with the last report is that exports decline along with imports, dropping 2.7%, their sharpest drop since 9-11. The trade balance improved because exports fell less than imports. Given the overall decline the prior 4 months, the improving foreign economies, and the weaker dollar, however, the August drop in exports is more of a respite than a change in trend.
THE MARKET
The market showed the resilience that has kept it running higher the past three months despite some distribution and increased volatility with two 50 day MVA tests on Nasdaq when it had not tapped it once since the April breakout. It has been a long run without any significant rest, and moves tend to get more volatile as the run gets older. The action Friday indicated the big money was not ready to turn and sell stocks despite the Thursday intraday reversal that resulted in a failed breakout over the September highs.
This ability to absorb the selling and mostly hold its ground is a characteristic of the market over the past 2.5 months. Volatility has risen and there have been more distribution sessions cropping up, but the market has managed to overcome the bouts of higher volume selling and continue the post April breakout trend higher. It appears it is trying to do the same now as money is not leaving the market even as it stumbles here at the September highs. It is important to note that the market is still in the strong uptrend it that started with the April breakout and is showing no signs of breaking that trend at this time.
Near term things are a bit more iffy. It is at the top of a run off the 50 day MVA that has put it at a prior resistance point. It tried to make the breakout but reversed on rising volume as some good earnings and unexpectedly upbeat economic news have not been able to break this resistance. It was positive that it did not sell off Friday, but it is still in a precarious near term position as the earnings onslaught is about to begin. It has run up off the 50 day MVA to that former top that sent it lower, and at the same time Nasdaq is at the upper channel line that was created with the March and May highs as Nasdaq broke out and started this run. That upper channel acts as a governor on the upside runs. Nasdaq has broken over that level on two occasions in September, but that prompted a selloff to the 50 day MVA. SP500 has bumped into the August up trendline it broke in late September, tapping that level the previous Friday and then again last Thursday.
Those trendlines tend to keep the upside in check. After a long run if a stock or index breaks sharply through an upper channel line you have to be very careful it is not making a blow off top. The fact that the indexes are hesitating some at those levels is thus really not a bad thing. If they had continued on a sharp ascent it would have been hard for them to maintain the move. Based on the action at resistance and the relative positioning of Nasdaq with its trendline, and Nasdaq's height above its 200 day MVA (22.8%), we anticipate the indexes will make a pullback to near support.
That is not saying the market is rolling over. It is still in a nice uptrend but is at the top of the channel and a pullback would be normal. Stocks have rallied ahead of earnings and are not powering higher overall in response to some solid individual earnings and guidance. Further, they could not hold the advance on good retail and jobs news. Unless earnings are blowout overall it appears that the market won't get much mileage from earnings at this point and they may even act as a drag. Again, the market may rally from here; bull runs tend to always surprise in their strength. The better action, however, is a pullback to near support this coming week and then another run at the resistance. That will not quiet the valuation talk but it will put stocks in a much better position to book better gains.
Market Sentiment
VIX: 18.45; -0.37
VXN: 27.62; -1.22. VXN has drifted back to a level it hit in late September when Nasdaq peaked. VXN moved up as Nasdaq fell, and then VXN fell as Nasdaq rallied back up to that September high. Over the past 4 to 5 months it has set up a loose correlation with index peaks even as the index maintains its upside trend. This suggests that near term pullback we have discussed. This correlation is much more pronounced on VXN than on the VIX.
Put/Call Ratio (CBOE): 0.93; +0.17. There is a lot of speculation by option traders that the market will fall here as the number of puts purchased approaches the number of calls. When the normally bullish options market turns bearish that is typically a contrary indicator. A drop in the indexes down to the 18 day MVA would send it over 1.0 on the close and indicate a bounce coming.
NASDAQ
Turned in a positive performance Friday on the back of the SOX as chips were the stronger tech group. Still at resistance, however.
Stats: +3.41 points (+0.18%) to close at 1915.31
Volume: 1.468B (-29.76%). Volume fell off the table and well below average after the sharper volume reversal Thursday. No churning, just maintaining the status quo.
Up Volume: 847M (-527M)
Down Volume: 560M (-105M)
A/D and Hi/Lo: Decliners led 1.15 to 1. Never had much traction all session
Previous Session: Advancers led 1.52 to 1
New Highs: 220 (-177)
New Lows: 12 (+5)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Nasdaq stalled at the September high (1913.74), managing to hold just over that level on the close. As volume backed off to well below average you cannot read too much into that action. The bigger picture shows Nasdaq at the upper channel line to its uptrend as measured by the March and May highs. There is no question it can spurt over that level as it did in September, but a sustained move over that level would be difficult. Thus we are looking for a test of the 18 day MVA (1868) this coming week and then another attempt to break through that September resistance.
S&P 500/NYSE
Still struggling at the September high, flatlining at that point Friday on very low volume.
Stats: -0.67 points (-0.06%) to close at 1038.06. Right below the September high at 1040.
NYSE Volume: 1.1B (-29.44%). Well below average again after that big volume spike Thursday on the reversal. Volume was solid off the 50 day MVA, but then trailed off the past week.
Up Volume: 547M (-489M)
Down Volume: 542M (+41M). Dead heat.
A/D and Hi/Lo: Advancers led 1.21 to 1. Modest advancers, but matched the overall action.
Previous Session: Advancers led 1.66 to 1
New Highs: 277 (-237). Big drop off in new highs even as the index held the high.
New Lows: 7 (-3)
The Chart: http://www.investmenthouse.com/cd/^spx.html
A doji right at the September high on low volume, holding onto the gains for the week. As with Nasdaq, not bad action after the Thursday reversal. It tapped the August up trendline Thursday (1050) and fell back. SP500 has a good summer base behind it, and after a pullback from this high to regroup it is still in position to rally. The 18 day MVA (1024) is a good point to hold and try again for the breakout.
DJ30:
Stats: -5.33 points (-0.06%) to close at 9674.68
Another index showing a doji at the September high (9686), DJ30 is in a similar shape as SP500, coming off a good summer consolidation. GE is in a serious breakout to the downside, but it held up well overall. A pullback to test near support (18 day MVA at 9541) or 9500 would be the point to watch for a rebound.
THIS WEEK
Big week for earnings and a big week for economic data. Retail sales (not same store sales reported last week by companies), Philly Fed, Michigan sentiment to name a few. There will be plenty of fuel for the market, but what will the market make of it.
The economic data does not hit until Wednesday, so there is time for the market to make a pullback to test near support and then ride some good economic data back up for a test of resistance yet again. Sounds pretty simple, but the market is still in an uptrend and though it has shown some distribution there has not been share dumping. Good earnings are factored in, and if they don't deliver we have to watch for higher volume selling and how the indexes and leaders act at that near support. We don't expect a lot of earnings disappointments, however, given the lack of warnings
We will be wary of another early attempt to break the September high without a prior pullback. If it does we will be watching the stocks making the breakouts and the new high runs to see if volume rallies. It will be critical that new buyers surge back into the market to push it higher given the distance it has already run.
Again what we expect the market to do is give a test of the near support and then try another run at the September highs. We will watch volumes on any selling to make sure it does not ratchet up and show big money is selling stock after the failed attempt at the September highs. Higher volume selling would indicate a double top with the high volume Thursday reversal. That is just something to keep in mind as the market is still very much in its uptrend.
Support and Resistance
Nasdaq: Closed at 1915.31
Resistance: September high at 1913 is not broken. 1930 - 1935. Then 2000 to 2050.
Support: 1889 (early September highs). The 18 day MVA (1868). 1860 to 1865. The 50 day MVA (1814). The March/August up trendline (1808). The July high (1776).
S&P 500: Closed at 1038.06
Resistance: 1040, the September highs. Then 1050 and 1080 from February 2002 lows. 1100 to 1150, the early 2002 double top.
Support: 1030 to 1032 (early September highs). The 18 day MVA (1024) and the top of the summer range at 1015. The exponential 50 day MVA (1011). 975 (December 1997 peak). 965 (August 2002 peak). 961, intraday lows in the summer range.
Dow: Closed at 9674.68
Resistance: 9735. 9800 (April and May 2002 lows).
Support: 9609 (early September highs). The 18 day MVA (9541). 9500 (June 2002 lows) is the top of the recent summer range. The exponential 50 day MVA (9420). 9353 (top of summer range). 9250 to 9236, the early June intraday high.
Economic Calendar
10-15-03
Retail sales, September (8:30): -0.2% expected, 0.6% August.
Retail sales, ex Auto (8:30): 0.4% expected, 0.7% prior.
NY Empire idex, October (8:30): 15.0 expected, 18.4 September.
Beige Book (2:00)
10-16-03
Initial jobless claims (8:30): 390K expected, 382K prior.
CPI, September (8:30): 0.3% expected, 0.3% August.
Core CPI (8:30): 0.1% expected, 0.1% prior.
Industrial production, September (9:15): 0.4% expected, 0.1% August.
Capacity utilization, September (9:15): 74.8% expected, 74.6% August.
Philly Fed, October (12:00): 16.4 expected, 14.6 September.
10-17-03
Housing starts, September (8:30): 1.834M expected, 1.820 August
Permits, September (8:30): 1.828M expected, 1.886M August.
Michigan sentiment, October (9:45): 88.5 expected, 87.7 September.
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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world stock market
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