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10/22/03 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: None issued
Buy alerts issued: ODSY
Trailing stops issued: KOMG; DRIV
Stop alerts issued: Moved out of those failing at support. ANEN; ALGN; GERN; PANL
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:
- Earnings saturation turns to earnings selling.
- Nasdaq, SP500, SOX closed at near support, but after hours selling indicates that won't hold.
- Thursday's weekly jobless claims had better be good to stem the tide.
Failure to meet analyst expectations for 2004 starting to gouge holes in the market.
We discussed this new phenomena earlier this week, how CEO's are trying to manage earnings outlooks and not get back into the game of pandering to Wall Street analysts. The combination of pressure to increase earnings each quarter during the market boom, a tough bear market, a profits recession, shareholder lawsuits, regulation FD, and Sarbanes-Oxley have forced (allowed?) naturally conservative corporate execs (excluding, of course, the Larry Ellison's of the world) to tone down expectations. Analysts have bought off on the recovery, and they are ramping up earnings expectations. Companies are unwilling to do so. Thus good quarterly news fails to satisfy the market's need for data regarding the future, and without that investors are unwilling to put more money into stocks at these levels.
The theme reached across all market industries with big drug stocks, select consumer stocks, tech stocks, biotech stocks, and more sold lower as volume rallied on the NYSE. Breadth was pitiful (-3:1 Nasdaq). While many stocks traded down to near support, a fair share were in serious trouble, selling through near support. Nasdaq and SP500 managed to hold close to support, but they closed on the lows and have left little maneuvering room for a rebound.
That maneuvering room would be nice to have because KLAC missed earnings after hours with disappointing sales, and it along with other chip equipment makers were on the run, down $5 and more. A market that was trying to hold up and consolidate just below resistance looks as if the bottom is going to open up a bit Thursday. Some we listened to Wednesday night are calling for a potentially huge decline. No doubt they are also looking at the calendar and thinking a late October drop might be in order. Bigger picture, however, the Nasdaq is still in a very nice uptrend, just coming off of its upper channel and a long way above its 50 day MVA. It did not sell on strong volume and even if it sells further, it has room to correct and still hold the uptrend at the 50 day MVA.
THE MARKET
Forecasts for 2004 are just not good enough to hold up to current expectations, and it is again triggering distribution after another test of the upper end of the range. We liked what we saw in DJ30 Tuesday, but it did a swan dive Wednesday as did SP500, both falling on sharply expanding volume. The drop in price shows more sellers in the market. The rising volume accompanying the selling shows there are more sellers overall in the market. Translated, that means the big money institutions that were buying stocks were starting to sell them in greater numbers.
Up to now the new money coming into the market has stepped in at each significant or even minor dip and rallied stocks back. There has been enough performance chasing given the expanding economy and corporate outlooks to overcome the intermittent selling bouts. With companies now coming out and refusing to go along with analyst expectations about what they should forecast, however, the market could be at a point where it will need to give up more of the gains to get investors back to a point where they want to start accumulating shares again. The disappointing 2004 forecasts are the new element in the mix, and it is pressuring stocks hard as they come off the highs. As always the key will be how they hold up at more serious support.
It is still very early. As noted, Nasdaq remains well over the 50 day MVA as do SP500 and DJ30. Thus the solid uptrend is still in place and the market can easily correct, take out some froth, and then resume its trend. It may decide to base laterally as opposed to a sharp bounce off the 50 day MVA, but that is what we were saying needed to occur back in August and September. A nice lateral move for a month or so would put it in better shape for a run higher through January or so without the consequences of a sharper sell off because of an overdue correction. In short, there may be a deeper test toward the 50 day MVA as part of a normal move within the overall trend, and some may be viewing this as the 'October sell off.' Let them hype it up. It would take a big change of character for the uptrend to unravel.
Market Sentiment
Rising volatility but still way too low to indicate any end to selling. As the indexes are just coming off the top of the range, one can hardly expect the selling to be over unless the market makes one of its about faces.
On the other side of the sentiment ledger, the put/call ratio spiked again to a level that has indicated short term rebounds during this rally. There have been a lot of protective put buyers (funds that cannot rapidly move in and out of stocks) as well as downside speculators for the past three months since the market started showing higher intraday volatility and some distribution. Once again the market is showing the same and the put ratio is jumping. This is a contrary indicator that suggests the bounce may be shorter than some of the gloomsters are talking about. It has been accurate on the moderate selling rounds during this uptrend, but it often takes 2 to 3 higher closes to provide the recovery bounce.
VIX: 17.67; +1.12
VXN: 25.68; +1.33
Put/Call Ratio (CBOE): 0.98; +0.28
NASDAQ
Nasdaq, helped by SOX, led the plunge Wednesday, but though volume was strong, it was lower than the Tuesday upside session. No distribution on the leading index, something a few were overlooking in the market aftermath.
Stats: -42.83 points (-2.21%) to close at 1898.07
Volume: 1.726B (-1.17%). Not much of a decline but it the selling did not gather any more strength into the market. In short, the sellers did not overrun the index though they were obviously in charge for the day.
Up Volume: 379M (-851M)
Down Volume: 1.306B (+808M)
A/D and Hi/Lo: Decliners led 3 to 1. Woeful breadth as the earnings guidance took the starch out of a lot of techs.
Previous Session: Advancers led 1.37 to 1
New Highs: 130 (-109)
New Lows: 16 (+10)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Nasdaq broke the 18 day MVA (1903) on the close after a late rally recovered that near support but could not hold it. It has not smashed through but could still easily test lower to 1888 (early September high), the 50 day MVA (1845), or the up trendline at 1840ish. Nasdaq's pattern is not one of a nasty top, but looks more like another rally higher in the uptrend that tested the upper channel and is now coming back to test the trendline. The issue at that point is whether the concerns about the 2004 earnings are such that it distributes on the way down and then breaks down. We will watch the trade levels as it moves, and move out of positions as necessary. Thus if the index does break down we will be out of harms way on the upside.
S&P 500/NYSE
Hung onto some support at 1030, but volume spiked as it sold hard through the 18 day MVA. A 50 day MVA test appears to be in the cards.
Stats: -15.67 points (-1.5%) to close at 1030.36
NYSE Volume: 1.625B (+11.91%). Big volume spike as trade hit its highest level since coming back from Labor Day. That means distribution, i.e., high volume selling by big money. Not fatal at this stage as there have been few such sessions, but it is definitely a warning shot for an index that spent the summer consolidating, broke out, failed the breakout, tried again, and is now in trouble again.
Up Volume: 363M (-415M)
Down Volume: 1.243B (+583M)
A/D and Hi/Lo: Decliners led 2.24 to 1. The market was selling across the board.
Previous Session: Advancers led 1.28 to 1
New Highs: 126 (-106)
New Lows: 11 (+4)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Knifed through the 18 day MVA (1035), managing to hold some support at 1030. That puts it right at the early September high but just a skip away from the 50 day MVA (1020) and right over the highs in the summer range (1015). The index spent a long time setting up the base for a breakout, but it has been unable to follow through on the breakout attempts. If it continues to sell, best case scenario is a test of the 50 day that holds or even down toward 1000 and a lateral move to set up another foundation for the next breakout attempt. Still very few distribution sessions thus far, but there always are when a sell off starts. Looking for some support at the 50 day MVA yet again.
DJ30:
Stats: -149.4 points (-1.53%) to close at 9598.24
Looks can be deceiving, and the Dow turned ugly in a hurry as it dumped through the 10 and 18 day MVA (9700, 9658) Wednesday on a surge in the index volume. Even with the drop it is still well above the top of the summer range and is at the early September highs (9588). There looks to be some good support at the 50 day MVA (9510).
THURSDAY
After finishing at session lows the indexes received no relief. KLAC beat by a penny, but profits fell and its guidance was below consensus. Seagate said demand for its products (PC drives) was less than expected. These were gut punches to a market that was still winded from the close. Chip equipment stocks were in the tank after hours. Other sectors were getting hit as well with similar lackluster guidance for the future. There were some very good reports and some good guidance, and those may perform well despite the market as CECO did Wednesday. The after hours pressure on the market overall, however, far out weighed the good earnings results and guidance. KLAC was down another $4, NVLS down another $3. There is a lot of upside built into these stocks, and if the companies are not going along with what the analysts want there is finally a solid reason to sell and not worry about catching performance just at this moment.
The after hours indications, while hardly something one can rely on for the next session, were sharply lower (Nasdaq futures -19 versus fair value). Without a doubt there is a lot of downside momentum and gasoline was tossed on the fire after hours when many stocks had sucked it up and recovered some on the close to hold near support. We saw many stocks that were struggling turn back up and hold near support in the last half hour. This additional news will once again put pressure on stocks from the open.
It would thus seem stocks are set for another lower open that will move toward the 50 day MVA on the major indexes. As noted above, that is not necessarily a bad thing and does not wreck the uptrend. Perhaps if weekly jobless claims fall below 350K that would cauterize the bleeding, but that is more than might wishful thinking. It looks as if the market is set for a further test lower, one that has been hinted at for weeks but could not take hold as new money was put to work in any sign of weakness. Even with a 50 day MVA pullback, however, that will still just be routing, something the market did at the end of September. Without a doubt chips will be boxed around on the open, and it will be difficult for Nasdaq to recover in one session from the kind of selling seen after hours. It is still 20% over its 200 day MVA even after the selling, and a move to the 50 day MVA puts it at 16%, a much more palatable level to start the next move higher.
In any event, we do not expect much tomorrow from buyers unless they prove to be incredibly resilient and deadest on buying the dips. In September it took over a week to get to the 50 day and provide the point for the next rally. A day or two of selling most likely would not do it this time either.
Support and Resistance
Nasdaq: Closed at 1898.07
Resistance: The near top of the channel (1955). The second, higher channel hit in September is at 1975ish. Then 2000 to 2050, the early January 2002 double top.
Support: The 18 day MVA (1903) is not totally broken. 1860 to 1865. The 50 day MVA (1845). The March/August up trendline (1840).
S&P 500: Closed at 1030.36
Resistance: The 18 day MVA (1035). 1040, the September highs. 1054 (October highs) and 1058 (the August/September up trendline). 1050 and 1080 from February 2002 lows. 1100 to 1150, the early 2002 double top.
Support: 1030 to 1032 (early September highs). The top of the summer range at 1015. The exponential 50 day MVA (1020). 1010 the early September highs. 975 (December 1997 peak).
Dow: Closed at 9598.24
Resistance: The 18 day MVA (9658). 9686 (September high) may act as some resistance. 9800 (April and May 2002 lows) pushed it back again. 10,000 is the candle that attracts the moth.
Support: 9588 the early September highs. The exponential 50 day MVA (9510). 9500 (June 2002 lows) is the top of the recent summer range. 9353 (top of summer range). 9250 to 9236, the early June intraday high.
Economic Calendar
10-20-03
Leading Economic Indicators, September (10:00): -0.2% actual, -0.1% expected, 0.4% August.
Treasury Budget, September (2:00): $26.4B actual, $25.0B expected, $42.5B August.
10-23-03
Initial Jobless Claims (8:30): 385K expected, 384K prior.
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End part 1 of 3
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