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us stock market, stock watch
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6/20/01 Technical Traders Report
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Technical Traders Subscribers:
TONIGHT:
- Analysts again made a run at the market, but good news won out.
- INTC sees decent third and fourth quarters and AOL sees ad spending firming.
- Leading Economic Indicators stronger than expected as we expected.
- Greenspan: Banks lend the money!
- Indexes rise late on stronger volume, finally demonstrating some bullish action.
- Team Trades
THE SUMMARY
Dan Niles gets his two cents in on INTC, but good news finally prevails.
In yet another demonstration of analytical prowess, more analysts and brokerage houses came out with downgrades in the tech sector on stocks that are mere husks of their former selves. Dan Niles renewed his vendetta against Intel, no doubt upset at being upstaged by Joe Osha's Tuesday attack on INTC. Dan continues to harp on INTC as if he has something personal against the company. Did management snub him at some point in the past? Frankly, it appears obvious to us there is some bad blood there, and it is hard to take Niles seriously because of it. If he has anything to say, seems INTC is the target of his analysis. Well, the investing public could use a bit more analysis that is useful other than his continued diatribe that INTC is going nowhere anytime soon.
Of course, this is in contrast to what Intel management is saying. Today the company stated that it was somewhat positive on Q3 and Q4; not a glowing forecast, but it was positive and cited stabilization in their business. That ultimately overcame the analyst comments and the stock was up on the session along with the rest of the market.
Good news helps overrun the incredibly negative and incredibly late analyst downgrades.
We said it awhile back: all of the analyst downgrades the past few months were way too late to do anyone any good. They say sell when you should be buying, they say buy when you should be selling. At least that is the way it has worked out over the past two years. The wave after wave of downgrades and negative comments the past month has only helped to affirm our belief that things are indeed at their worst right now. Much as with our stated position that the economic data is its worst right before it improves, the analyst downgrades and negative views crescendo just as things are ready to turn.
And the analysts are not the only ones. As soon as the market closed CNBC anchor Liz Claman noted the good Nasdaq volume on an up day, but she said it was most likely just selling volume into another rally. Talk about a trained monkey. The Nasdaq rose almost 55 points in the last two hours from the low to the high on the session. Now we have only been at this for 20 years or so, but that sure looks like buying into the rally, not selling. Then there is Bob Pisani who for the past three sessions has single-handedly declared any V recovery in the economy dead. He was at it again after the close today. Bob, what about the LEI that were stronger and look 3 to 6 months down the road? Bob, what about ORCL's comments, INTC's comments once again, and the jump back up in housing and building permits? Bob, you are listening to your 'sources' too closely without an objective eye and ear.
The point: the media is picking up on how negative the analysts are and they are spreading that same tripe over the airwaves. Same result: incredible negative attitudes lead to turns in the market. Even when they see it they don't believe it, and that is what makes it so incredible. They really don't have a clue, they just read lines. If they have to ad lib it is almost painful to watch but for how hilarious it is. Comedy Channel, you have met your match.
In any event, the good LEI, Intel comments, AOL's comment that the ad market was firming, and upgrades on EBAY (finally someone hit one right) and others helped to overcome the downward momentum for a gain on stronger volume. Not a big turnaround day as no milestones were passed, but it was positive action after investors said 'enough' to the analysts and started looking down the road again. The pieces of the future puzzle, not the one in the past, are beginning to piece together as we said they would: better economic numbers start coming out along with positive guidance by companies. It is very hard to fight what will be six rate cuts in 6 months, a tax cut, and a prolonged bear market. Those tend to lead to raging bull runs, and we say that despite all of the daily reporting about how the market will not recover for years.
We are going to see more good news, and the market will respond. Indeed, it is already responding as last night we noted the retailers and financial sectors have already started to move higher. These move well when a recovery is anticipated. Investors were anticipating better economic news as they started to buy into these stocks. We saw the move starting and that is why we put stocks such as FITB, NCC, GDW, LOW, AEOS, ANF, and BBBY on the reports.
THE ECONOMY
LEI up smartly.
The Leading Economic Indicators rose 0.5% in May versus a 0.1% gain in April and an expected 0.2% gain. This is the biggest gain in the LEI since December 1999. Manufacturers' new orders for consumer goods and materials held steady in May, a potentially positive sign for manufacturing. This indicator looks 3 to 6 months down the road. It shows things are improving ahead. Some economists think it will still be slow growth, but with the indicator up to the highest level it has been since the economy started its very strong run, you have to be encouraged by the numbers.
Greenspan gets on the banks: lend the money!
Greenspan was speaking today to the Senate banking committee, and he noted low pricing pressure continued consumer strength are keeping inflation at bay, and that is a necessary prerequisite to economic prosperity. He then talked of banking lending policies and noted that banks were getting better at lending in economic downturns, implying that they still had a ways to go. The message was clear: the Fed has lowered rates, so go out and get that liquidity into the economy!
As we have said before, we anticipate continuing economic improvement despite all of the gloom we hear each day. It would be highly unusual for the work done thus far not to have a positive impact in Q3 and Q4. We are seeing improvement already in the numbers, and we anticipate even further improvement from the LEADING indicators, not those telling a history lesson. By leading we mean the LEI, building permits as we saw on Tuesday (home sales in Houston, Texas were up 50% in May 2001 compared to May 2000), and confidence. All are doing much better. We will see ups and downs still; that happens when markets or economies turn. Still, we think the LEI shows us that we are in fact in the bottom of the trough.
THE MARKET
The markets showed some bullish signs today, overcoming yet more downgrades and negative views on the economy and companies to close higher on a nice rise in volume. It was up and down, but then all indexes rallied nicely in the last two hours to close near their highs. Overcoming adversity and then rallying to close are bullish. One day does not make a rally, however, and there is still a lot of overhead to fight through that the indexes did not even challenge today. It will take continued good news from companies and about the economy as we have been starting to get in spite of the extremely negative analyst views.
But note. Each index has tapped at a low the previous four sessions and held. The Nasdaq has held the line at roughly 1990. Same with the S&P 500 at 1200 to 1210. The Dow: 10,560. Friday there was selling on very high volume, but closes off the lows. Then testing the lows day after day, and a move up Tuesday on higher volume that was somewhat of a failure. Then today the markets tested low again and started up and finished up on strong volume. That is an indication that there is more of a move up coming. No one is picking up on this, but it is right there in front of us. These are classic signs of an interim bottom.
In any event, there are stocks that have been anticipating the good economic news and breaking out or preparing to breakout. We have been following those and they were breaking out again today: EBAY, BMET, LOW, AEOS, ANF, BBBY, NCC, UNFI and FISV to drop some names. We have said it before: the good patterns hold up well and then breakout when the good news comes. The present picture is not good; but stocks price future events, not what is happening now or the last quarter.
Overall market stats:
VIX: 23.86; -1.06. Volatility hit 25.28 on the high before falling on the late rally. The indicator has been holding in the mid-range and started dropping again today.
VXN: 54.54; -0.72. Volatility hit 56.33 on the session high before the late rally dropped this Nasdaq measure. It is not high nor is it low right now.
Put/Call ratio (CBOE): 0.60; -0.13. As the indexes started to rally, put buying dropped off and this indicator fell. But it still is in the upper range where it has spent much of the year. We did not get the spike over 1.0 as the index rallied on the good economic news. When push comes to shove, good economic news at this point trumps these secondary, contrary indicators.
NASDAQ:
Stats: Up 38.58 points (+1.9%) to close at 2031.24.
Volume: 2.112 billion shares (+6.7%). This was the highest Nasdaq volume since options expiration last Friday, and it was a month prior to that since the index traded on above average trade. The second day in a row of positive price/volume action, but again, it was no lopsided victory. Up volume led 1.145 billion to 955 million downside shares. We like the improved price/volume action, but we need to see further follow through.
A/D and Hi/Lo: Advancing issues moved back ahead, but it was a meager 1.06 to 1 lead (decliners led 1.35 to 1 Tuesday). New highs rose to 75 (+12) as new lows rose to 155 (+17).
The Chart: http://www.investmenthouse.com/cd/$compq.html
Up and down all day before rallying to the high in the last two hours on a 55 point run. That was impressive action for a change after days of higher opens and lower closes. The market is still not out of the woods; one day does not turn the market, but it gets us looking for the next rally to start, especially with the tapping on the lows for several sessions and the higher volume move up today. There is still resistance at 2052 to 2077, and the 50 day MVA is at 2129.66. Lots of overhead to work through and not a lot of support below until 1961 to 1852. We are not letting one day get us overly optimistic that the big names that carry the index will move it higher. We have to look at the patterns and those stocks that are ready to move. That is how to make money in this market.
Dow/NYSE: The Dow dragged itself back over the 200 day MVA on higher volume. That is a positive, but the pattern was not great. Still very much in jeopardy.
Stats: Up 50.66 points (+0.5%) to close at 10,647.33.
Volume: 1.343 billion shares (+13.4%). Above average volume again today on the NYSE. Another accumulation day to try and offset the recent distribution. Up volume did outpace down volume, 716 million to 610 million shares. Not a decisive day, but it was a turnaround.
A/D and Hi/Lo: Advancing issues did a bit better on the NYSE at 1.43 to 1 (decliners led 1.02 to 1 Tuesday). New highs rose to 135 (+35) as new lows rose to 84 (+20).
The Chart: http://www.investmenthouse.com/cd/$dja.html
Finished close to its session high, again bullish action. But the index was just able to drag its rear over the 200 day MVA (10,624.06) on the close, 55 points off of the session high (10,702.07). It has that real overhead at the 10,750 to 10,800 level. The 50 day MVA is at 10,779.39, adding to the overhead. The pattern is precarious, but again, we see the signs of that interim bottom. It needs continued good economic and company news to make the moves it needs. Not the time to get all hyped up about today's move up on stronger volume. It is a necessary move, but not definitive. Patterns, patterns and patterns are the key in this market.
S&P 500: The big caps put on a decent show as well, but was unable to take out its session high (1225.61) as the Nasdaq did. Note that the high was just under the resistance level at 1232 to 1250. That is going to be a headache for the big caps even though they made the gain on rising, above average NYSE volume and have been trying to form an interim bottom. The big caps are having a hard time as Greenspan said: corporate profits being hurt right now, and the patterns are in less than perfect shape. The index pattern itself is not pretty, and it has more downside risk than upside potential just looking at the chart. However, it is impossible to tell how much downside. 1182 still looks like a possible level it could hit before it really finds its footing. We believe that the market has already bottomed and that it will find the second bottom for the next move up. Again, play the patterns on the strong stocks. Those ride out the downturns and then breakout when the good news hits.
Stats: Up 10.56 points (+0.9%) to close at 1223.14.
Volume: NYSE volume was above average again today at 1.343 billion shares (+13.4%). Another positive price/action day as it tries to work off that distribution.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Stocks closed with a strong flurry, particularly on the Nasdaq. That can lead to stronger opens tomorrow, but this market is one that is volatile as it tries to find bottom. Barring any terrible news (and can it get much worse than daily downgrades and warnings?), we expect to see the indexes make a choppy run at resistance (meaning, up and down action). They have swallowed a lot of negative news of late and have sold down on it. Now they are holding the line and look ready to overlook some of the bad news in favor of possibly better times down the road. MU is up after the close tomorrow, and its guidance will be key to the scenario we are laying out. MU previously stated that it saw its business bottoming and starting to improve.
So, contrary to many out there, we see this as an interim bottom that has formed that will make a run at resistance levels. It may not be successful. There has been a lot of selling and there is now a lot of overhead and resistance to overcome. We will let the market tell us if it is going to do that, but we will do that by continuing to focus on what brought us here: stocks with good numbers and good patterns. Hate to sound like a broken record, but look at the up days and the down days of late: we still have stocks we are following breaking higher and making the moves we are looking for whether the day is 'up' or 'down' on the indexes. Just because the market overall starts to rally it does not mean we just start jumping on the old names and trying to ride them higher. We stick with the gameplan, or as a famous Texas coach once said, "we dance with who brung us." That is easy anyway because these are the leading stocks that are setting the pace anyway.
Support and Resistance Levels
Nasdaq: Closed at 2031.24.
Resistance: 2052 to 2077 is the bottom of the trading range. 2129.66 is the 50 day MVA.
Support: 1961 to 1852.
S&P 500: Closed at 1223.14.
Resistance: 1232 to 1240 are the bottoms of the trading range. Then 1250.
Support: 1200 is the next level. Head and shoulders bottom and the breakout support from the double bottom pattern is right at 1182.
Dow: Closed at 10,647.33.
Resistance: 10,750 to 10,800 where the down trendline between the January 2000 all-time high and the September high is currently (and the 50 day MVA is at 10,779.30). 11,000 is possible resistance after that. Then 11,196.53 (the last top). After that, 11,350.
Support: 10,560 is trying to form as support. Then 10,400 is the point of consummation for the head and shoulders pattern and some previous lows.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
6-19-01
Housing starts for May (8:30): 1.622M actual versus 1.60M expected and 1.629 prior (revised upward from 1.609M).
Building permits for May (8:30): 1.621M (+2.1%) versus 1.630M expected and 1.587M prior.
6-20-01
Leading Economic Indicators for May (10:00): 0.5% actual versus 0.2% expected and 0.1% prior.
Treasury Budget for May (2:00): -$17.5B expected versus -$3.6B prior.
6-21-01
Initial jobless claims (8:30): 430,000 expected versus 428,000 prior.
Trade balance for April (8:30): -$30.9B expected versus -$31.2B prior
Current Account for Q1 (10:00): -$106.0B expected versus -$115.3B prior.
Philly Fed for June (12:00): -10.0 expected versus -8.8 prior.
End Part 1 of 2
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