|
|
world stock market, us stock market
* * * *
10/28/03 Technical Traders Report Update
* * *
Technical Traders Report Subscribers:
Tuesday and Thursday we issue a market summary and choice plays for the next session. Full reports issue Monday, Wednesday and Saturday.
MARKET ALERTS
Targets hit alerts issued Monday: None issued
Buy alerts issued: ASML; FCFS; MCHP; PBY; TEO
Trailing stops issued: AFOP
Stop alerts issued: IRM; CAMD
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:
- A drift higher into the FOMC meeting turns into buy fest.
- Businesses continue to buy, consumers more confident, chips selling better.
- Surging through the September highs, indexes break up any potentially toppy pattern.
- Still no easy ride as foreign internets hit after hours.
- Subscriber Questions
Stocks get what they want from the Fed.
As is typical in an uptrend, stocks drifted higher ahead of the FOMC meeting. There were some good individual moves prior to the announcement and overall the market was showing good action as the chips led the way on some bullish news (Japan orders sharply higher, TSM ready to invest in equipment, worldwide sales revised higher). At 2:15ET the Fed announced rates were unchanged, that spending was firming, and the labor market stabilizing, but there was still a lack of pricing power and consumer prices were still muted. Thus it felt that the risk of inflation remaining low continued as the primary threat and that the Fed would be maintaining its accommodative stance for 'a considerable period of time.'
Talk about getting what you want for Christmas. The market hesitated for about a half hour as it digested the message and turned it over a few times to see if there were any 'buts' or hidden surprises. Finding none, buyers swarmed all over stocks. Breadth had waned heading into the meeting, but it reversed and closed easily over 2:1. Volume shot over 2B on Nasdaq. Buyers jumped on and rode stocks hard into the close. There was a veritable perfect storm of good news that hit the market. It was poised for the bounce we have been writing about the past few reports, and when it got what it wanted the upside move almost left wind burns.
THE ECONOMY
Durable goods solid, business spending surges.
September orders rose 0.8% versus 1.0% expected. Take out transportation and they rose 1.2% versus 0.7% in August. Not bad numbers, but because this is such a volatile number month to month, the proof is in the revisions. August was revised sharply higher. A 1.1% initial report was almost erased with a revision to -0.1%. Ex-transportation, 0.7% versus the -0.3% originally reported. Again, strong positive revisions show the trend is rising and still gaining strength despite taking a breather.
The real meat of the report was not the headlines, however, but the business side of the equation. That was the missing link from March 2000 until the recovery started, and the September report was more verification that the business recovery is continuing despite the cautious outlooks by CEO's. As we have noted, they are hemmed in by Regulation FD, shareholder lawsuits, Sarbanes-Oxley. Thus they are more inclined to wait until the last minute to say things are good (e.g., INTC) and to let the numbers do the talking when they report results.
The non-defense capital goods portion of the durables report, however, does a lot of talking itself. It rose 3.9% in September after a -0.1% August showing. Orders for computers and electronic equipment jumped 2.6% over Augusts 2% gain. After the August lull, businesses continued to grow their spending. It is not incredible surge that some seem to think would be the only herald of recovery, but a solid, steady gain almost every month. Moreover, contrary to popular thought, we believe the gains will increase as we head to year end as businesses buy to take advantage of all available tax incentives before the year is over.
This stronger business spending and potential year end rush combined with what is starting out as an early strong consumer holiday season indicates to use that the Q4 GDP projections of just 3% growth is much too modest.
Consumer confidence firms up, starting to match actions.
October confidence rallied to 81.1 from a revised 77.0 (from 76.8) in September, much better than the 79.3 anticipated. We have noted all along that consumer actions were much stronger than what they were saying in the polls. Think of it along the lines of the CEOS; they are typically cautious but that does not stop them from going about business. Expectations (6 months ahead) rose to 90.7 from 88.5. Present conditions leaped to 66.8 from 59. Big jumps indeed and still below the levels they should be based on the consumer activity we see in the economy.
Chain store sales slow year over year, but stronger to start October.
Redbook reported a 3.3% year over year gain (3.5% the prior week), but October sales are up 1.1% over a strong September where back to school sales were the best in years. The BTM survey showed a weekly drop of 0.9% and BTM dropped its October projections to a 2.5% gain year over year from 3%. It cites warmer weather as the problem. That warmer weather, however, is spurring sales of lots of outdoors goods. We think BTM is underestimating the buying, but it has done that before as well.
The California fires are going to be more of an impact as CA is a big part of the US economy and the fires are around heavy population centers. Fighting fires and fleeing for your life makes you put things into perspective, and going to the mall is not the priority for those poor folks. Our sources in CA say there is quite a bit of discussion regarding terrorism causing the fires as one of Al Qaida's plans was to set fires in the US. The number and location of each does raise questions.
Japanese chip orders surge 29%.
In addition, TSM, one of the big chip makers, said it was going to make significant capital investments in 2004. The semiconductor association raised its estimate for worldwide chip sales. With this bounty of good news, SOX shot higher Tuesday. These reports are the logical conclusion from the action of the various world stock markets that have picked up steam across the globe. They forecast this news, but it is very good to see the data come in to back up what stocks have told us.
THE MARKET
When stocks got the trigger, the pullback to the 50 day MVA was over. Stocks surged, breaking near support and then moving through the September highs with ease. Volume jumped, breadth expanded, leaders were surging and breakouts were widespread among small, mid-cap, and large caps. The market was poised to make the move, the leaders were out in front, and the catalyst came from the FOMC as investors did not wait for the Thursday GDP report.
Market Sentiment
Typically the talk regarding sentiment focuses on the individual investor, but it also looks at market analysts and advisors. It was interesting to note that practically every analyst on CNBC and Bloomberg has been 'bullish longer term but cautious near term because stocks have gone too far too fast.' As we stated the past several reports, however, the market was showing signs of another move higher. Maybe it is extended, maybe it does need a longer rest, but after testing the 50 day MVA it was showing signs it was ready to move. Another contrary indicator we suppose, but the market was showing it wanted to make the move even as many ignored those signs and relied on their gut feelings about valuation.
VIX: 16.82; -1.23
VXN: 25; -1.12
Put/Call Ratio (CBOE): 0.75; +0.11
NASDAQ
Up all day, Nasdaq gapped higher, ran through the 18 day MVA, and then surged past the September highs on very strong trade. Very solid action.
Stats: +49.35 points (+2.62%) to close at 1932.26. Outstanding session.
Volume: 2.092B (+37.23%). One of the top volume sessions of the month.
Up Volume: 1.495B (+398M)
Down Volume: 572M (+179M)
A/D and Hi/Lo: Advancers led 2.43 to 1. The kind of breadth you like to see.
Previous Session: Advancers led 1.91 to 1
New Highs: 294 (+101). Keeping an eye on this. Not a bad reading even though Nasdaq is well off of its highs.
New Lows: 6 (-4)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Nasdaq gapped up to the Monday intraday high, ran through the 10 and 18 day MVA and then the September high (1914). It hesitated after the FOMC announcement, but surged to the close, racing like a thoroughbred under the whip. Suddenly Nasdaq is looking at the first upper channel line (1960), the October high (1967), and the upper channel line (1978) as points it will rally to. From there it will either launch into a surge to year end that could leave it extremely vulnerable to a major correction, or it will again bounce down from one of those resistance points as it continues to work in its uptrend.
S&P 500/NYSE
Took out the September high on the best volume in two months. It held over the summer consolidation range, made a higher low, and blasted off.
Stats: +15.66 points (+1.52%) to close at 1046.79
NYSE Volume: 1.625B (+19.79%). Huge volume surge as large and small caps rallied well.
Up Volume: 1.227B (+365M)
Down Volume: 390M (-92M)
A/D and Hi/Lo: Advancers led 2.16 to 1. Solid back to back breadth.
Previous Session: Advancers led 2.07 to 1
New Highs: 307 (+112). Solid as well even before new highs are hit.
New Lows: 9 (-1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 has kept its accumulation pattern intact, holding over the summer consolidation range, making a higher low over the 50 day MVA, then blasting higher through the short term MVA and the September high (1040). As with Nasdaq, SP500 is suddenly looking again at the next potential resistance points. October high at 1054 and an upper channel at 1065ish. There are some early 2001 lows at 1100. Then the real resistance, however, comes at 1150 to 1175, the early 2002 double top. On any rally through the end of the year, that is going to be the real point where the index has to take a sustained consolidation. For the short term, the Tuesday session clearly telegraphed that the move that started Friday is for real.
DJ30:
Stats: +140.15 points (+1.46%) to close at 9748.31
Almost a carbon of the SP500, surging on volume after the Friday test of the 50 day MVA following the MSFT earnings. That the market shook off the MSFT earnings so quickly and broke near resistance with such force is a good indication that it has its feet under it after 4 months of basically lateral movement. It has more upside room, as does SP500, than Nasdaq that has led the market up to this point. The October highs are some resistance (9850), but if there is any sustained buying at all, 10,000 is the level that will act as a beacon for the Dow.
WEDNESDAY
Encore anyone? After the solid economic news and FOMC gift that helped spur the Tuesday action, Wednesday appears to be rather quiet. Some disturbing action after hours in the leading foreign internet stocks, however, shows this is never an easy ride. NTES reported softer mobile messaging hurt its overall earnings and the stock was getting stomped after hours. SINA and SOHU just reported strong mobile messaging in their earnings and thus it may be a NTES specific problem. The conference call was not held as of this writing, so no explanations or mitigation from the company as yet. We always keep an eye on the leaders, and this triumvirate were early leaders in this recent bounce. Most likely they will not sway the overall market, but it takes some of the polish off of what would have been a remarkable day.
Again, the indexes have gone from trying to put together a bounce to confronting the next resistance levels once again. There is strong backing based on the volume, breadth, and leadership Tuesday. We will watch how the internets react as well as other items such as new highs as the indexes approach the October highs. We want to see them jump back up; with the solid breadth demonstrated this week that should be the case.
We were moving into positions Friday and Monday, taking advantage of moves that were showing up during the uncertainty and analyst comments about coming 'too far too fast.' Those positions along with existing positions had us well positioned for this move. We entered more plays Tuesday as well as stocks broke out. Now the question is whether we continue to buy after this move or back off and let positions run.
We see many stocks we have been following in patterns making solid breakout moves Tuesday and are still in good position having just cleared the buy point. We will be looking at those on Wednesday. After that we will be looking for breakout tests over the next week as this move loses some steam and the early breakouts come back for their tests.
Support and Resistance
Nasdaq: Closed at 1932.26
Resistance: The near top of the channel (1960). October high (1967). The second, higher channel hit in September is at 1978. Then 2000 to 2050, the early January 2002 double top.
Support: The September high (1913). The 18 day MVA (1900). 1860 to 1865. The 50 day MVA (1852). The March/August up trendline (1850).
S&P 500: Closed at 1046.79
Resistance: 1054 (October highs) and 1061 (the August/September up trendline). 1050 and 1080 from February 2002 lows. 1100 represents some early 2001 lows. 1150 to 1175, the early 2002 double top.
Support: 1040, the September highs. The 18 day MVA (1035) and 10 day MVA (1037). 1030 to 1032 (early September highs) is still not totally broken. The exponential 50 day MVA (1022). The top of the summer range at 1015. 1010 the early September highs. 975 (December 1997 peak).
Dow: Closed at 9748.31
Resistance: 9800 (April and May 2002 lows) pushed it back again. 10,000 is the candle that attracts the moth.
Support: 9686 (September high) may act as some support. The 18 day MVA (9653). 9588 the early September highs. The exponential 50 day MVA (9529). 9500 (June 2002 lows) is the top of the summer range.
Economic Calendar
10-27-03
Existing Home sales, September (10:00): +3.6% (6.69M actual), 6.30M expected, 6.47M August.
New home sales, September (10:00): -0.2% (1.145M actual), 1.125M expected, 1.150M August.
10-28-03
Durable goods orders, September (8:30): 0.8% actual, 1.0% expected, -0.1% August (revised from -1.1%).
FOMC meeting (2:15): No change (1% Fed funds rate), risk weighted toward lack of inflation, rates to be kept accomodative for a considerable time.
10-30-03
Initial jobless claims (8:30): 385K expected, 386K prior.
Employment Cost Index, Q3 (8:30): 0.9% expected, 0.9% prior.
GDP, Advanced, Q3 (8:30): 6.0% expected, 3.3% Q2.
Help wanted index, September (10:00): 38 expected, 37 August.
FOMC minutes (2:00)
10-31-03
Personal income, September (8:30): 0.2% expected, 0.2% August.
Personal spending, September (8:30): -0.1% expected, 0.8% August.
Michigan sentiment, revised for October (9:45): 89.5 expected, 89.4 in September.
Chicago PMI, October (10:00): 55.4 expected, 51.2 September.
SUBSCRIBER QUESTION
Q: In the current uptrend, there are stocks that continue to go higher, seeming
to defy gravity. What are the conditions for a "blow-off top?" Specifically, there is one, CYD, that seems to just keep going higher, without any pull-back for a decent entry point.
A: A blow-off top typically occurs after a long run where the stock has put in a dramatic gain, often doubling or tripling. It is also more common if the stock has already moved through a series of bases and has broken out from a late stage base and raced higher. A late stage base is one occurring near the end of a series of four or five bases. The blow-off top is characterized by extreme high volume accompanied by rapid increase in price in the stock, followed by a rapid sell-off. The move up is almost ballistic. Volume is either the strongest, or close to the strongest, volume of the run. A stock in a blow-off top can gain from 50-100% in a short amount of time (usually just a few days), running to exhaustion as buyers pile in at the same time that sellers exit (those who bought on one of the previous breakouts). This explains the high volume. Because big money is now using this opportunity to sell, the stock crashes heavily in the characteristic rapid sell-off.
As a potential example that warrants caution, CYD flew up on over four times average daily volume beginning October 13 on the breakout from a 5-week flat base. That's not abnormal volume for a breakout, but the extreme price rise in the short time period (12 points in just over 2 weeks) and volume continuing to explode (up to over 9 million on a stock with average daily volume just over 1 million!) raises the possibility of a blow-off top. That 9 million in volume on October 21 showed the sellers were out in force right along with the buyers: the stock ran to a high of $29.61 but reversed as it was sold back down to $25.70, below its opening price. CYD continued higher the last few days, but volume fell back rapidly, and the stock won't sustain itself on that for long. Indeed, Tuesday the stock gapped higher again but reversed on another tremendous volume surge.
Additionally, the longer-term chart shows a series of back-to-back bases beginning back in March of 2002 for a total of five, the most recent the 5-week base noted above. This is a late-stage base, not really ill-formed but one to be cautious about since it's the fifth in a row. Often with a blow-off top the last base will not be well-formed, or there might not be a real base at all, just the explosion out of a continued uptrend. That fact and the excessive price/volume action alerts us to watch for a high volume reversal that starts the selling in a blow-off top. And since the sell-off can be as extreme as the price rise, the prudent act is to join the sellers and exit existing positions since the stock has likely moved far beyond initial targets. Moreover, a stock can collapse after such a move, losing 50% or more of its value. Sometimes it gives back the entire gain and then languishes for months. In the case of CYD, a look at the long-term chart shows how extended it is, so the stock needs to correct and consolidate before offering potential new entry points. If the selling is too severe it may not give us a new entry point for a long time.
The key to recognizing a blow-off top is to understand how the stock has been moving prior to the big move higher. Was it in a good pattern, or did the stock just blast out of a steady uptrend on screaming volume? How many bases are strung together in this move? Has a series of steady moves transformed into a wild dash higher on tremendous volume? Those are all signs of trouble. It is important to understand the stock's history, and whether or not it is showing the attributes of excess so you can either avoid moving in just before the crash or preserve some outstanding gains.
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 2
|
world stock market
us stock market
|
