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11/05/03 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: EMBT
Buy alerts issued: CKSW; ASCA; MKTY; SCMR
Trailing stops issued: None issued
Stop alerts issued: IDXC
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:
- Late recovery nicely wraps a session of rest.
- Economic numbers continue to race higher but you would never know it from the national coverage.
- Nice, quiet action as market prepares for jobs report.
- Subscriber questions
Sluggish session but a good day of rest.
A narrow range with indexes testing the 10 and 18 day MVA on the lows and managing to hold. A last hour buy program hit ahead of the Cisco earnings and rallied stocks, particularly techs which closed at session highs. That last hour of buying put a more bullish spin on the action as lower opens, higher finishes show buyers stepping in when they sense a buying opportunity.
The action kept the indexes above near support and below near resistance, a good resting session as the market pauses after reaching to new highs. It was a good response to the Tuesday churn, and another similar session Thursday sets the market up for a rally on the jobs report. With the CSCO earnings after the bell, however, there may not be a lot of resting, at least early in the session, as technology stocks were rallying on the strong revenues.
THE ECONOMY
September factory orders rise 0.5%.
That was less than the 0.6% anticipated, but it was a solid showing, and certain elements of the report as well as the upward revisions to August show very real underlying strength. The key element that everyone zeros in on is the non-defense capital goods orders excluding aircraft (a mouthful) that is considered a proxy for business spending. It jumped 4.7%, and combined with the strong business spending showing in the Q3 GDP report (11.1% annual rate), there is continued evidence of a much stronger than anticipated business recovery. The 4.7% is a month over month increase, and that puts the magnitude of the jump in perspective. Big.
Durable goods orders were revised even higher to 1.1% versus the 0.8% previously reported. Love those upward revisions. There were more. August orders were originally reported as -0.8%, but that was revised sharply higher to -03%. The headline numbers keep getting stronger and the prior numbers keep getting revised higher. Again we note that the economic expansion (no longer a recovery) is stronger and picking up steam much faster than nearly anyone expected.
ISM services soaring.
64.7 versus 63.4 expected and 63.3 in September. Areas showing continued consumption include health care, entertainment, and tourism. Remember we talked about pent up demand in the Tuesday report; entertainment and tourism are signs of that demand as people weary of 9-11 and two wars step out a bit more. New orders surged to 64.4 from 59.90. Employment crossed 50, hitting 52.9 versus 49.1 in September. That is the highest level since November 2000. While it does not mean much given the intervening circumstances, it is interesting to note that the last time the employment sub-index hit this level non-farm payrolls grew by 208K.
No inflation in sight.
For those worried about inflation, the prices paid sub-index fell. Worry about inflation is overstated right now. Interest rates can rise and still not indicate inflation when you look at real rates of return. For now this economy is responding to the tax cuts just as it did to the Reagan tax cuts in the early 1980's on into 2000: excellent expansion and growth without the associated inflationary rise in prices that Phillips Curve economists believe is a continual dark cloud on the horizon of every economic up cycle. These folks think that you cannot have growth and prosperity without sparking higher prices.
This is a surprisingly widespread belief given that it only appeared for about 7 years in the entire history of our economy. Now is it the general rule or the exception? Is every other economic expansion out of step or is the one shining example of the Phillips Curve the norm? Of course it is not, but many of today's economists lived through that period and thus firmly believe that has to be the case just as many of the brokers and money managers hitting the financial scene during the bear market are only capable of thinking in bear market terms. In its basic form, the Phillips Curve says that as GDP and employment rise, prices rise as well until they hit a point where price gains outrun gains in growth and jobs. Sounds plausible, but history does not bear out the theory. We have a few great jokes about the difference between theory and reality, but they are hardly appropriate in this forum.
Housing sales continue to defy gravity.
New purchase applications jumped 11%. Overall applications rose 5% because of the drop in refinancing (+0.3%). Yet another strong surge. This on top of homebuilding stocks reporting strong earnings and a big backlog of houses contracted to still be built. This is a longer term boost to the economy as it means houses are still going to be built down the road and that has a ripple effect for months down the road with furniture, washers and dryers, etc. being purchased.
THE MARKET
Stocks showed they still had some resilience as the refused to cave in after the higher volume Tuesday reversal on the heels of the Monday breaks over the October highs. Higher volume reversals are not good signals as noted in the Tuesday report, and the market's ability to shrug them off and hold near support in a narrow, quiet range indicates once again there are still a lot of buyers out there at the ready to put new money in on any perceived opportunity.
Wednesday there was no surge in response to the Tuesday churn, but the answer was almost as strong with a 'I don't care, we aren't going anywhere' session. This low volume pullback to tap at the short term MVA is another indication the market is not ready to crater. Once again it appears to be correcting internally, resting and healing itself as opposed to falling into a longer, more sustained consolidation. With the new money entering the market and the belief in the seasonal factors taking control on into January, the buyers are not yet ready to let the market slip into that consolidation that it will eventually require.
Market Sentiment
VIX: 16.86; +0.31
VXN: 25.2; -0.49
VXO: 17.56; +0.14
Put/Call Ratio (CBOE): 0.69; +0.08
NASDAQ
Tested the 10 day MVA on the low and rebounded to close basically flat on lower trade. Nice rest stop.
Stats: +1.41 points (+0.07%) to close at 1959.37
Volume: 2.033B (-3.49%). Volume slid back slightly as the indexes tested near support and rebounded. Good action as it holds onto much of the gain on the recent run higher.
Up Volume: 1.049B (+83M)
Down Volume: 913M (-187M)
A/D and Hi/Lo: Advancers led 1.02 to 1. Recovered late in the session, swinging from negative to positive.
Previous Session: Decliners led 1 to 1
New Highs: 312 (-90)
New Lows: 9 (-1)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Nasdaq continues to hover near the October highs (1966.87) while holding over near support (10 day MVA at 1937, 18 day MVA at 1924). Good action as it pulls back to near support after testing and momentarily breaking over the recent top. It could be classified as being in a precarious position near the top of the range, but it still has quite a bit of room to the upside with the first channel line at 1781 and the second way up over 2000. That puts it in the range of the January 2002 double top levels at 2050 and 2075. We think it will find resistance once more ahead of those tops and need to correct back again, but there is still upside for buyers to push it further from here.
S&P 500/NYSE
Nice tap of the 18 day MVA and rally to recover most of the loss as volume backed off.
Stats: +0.04 points (0%) to close at 1051.81
NYSE Volume: 1.352B (-1.71%). Volume backed off as the index tested lower and rebounded though still closed in negative territory. That is the price action you want to see on a test of near support.
Up Volume: 682M (+177M)
Down Volume: 655M (-205M). Dead heat, matching the session.
A/D and Hi/Lo: Advancers led 1.03 to 1
Previous Session: Advancers led 1.1 to 1
New Highs: 276 (-159)
New Lows: 9 (+3)
The Chart: http://www.investmenthouse.com/cd/^spx.html
The large caps are backing off after punching out a new high Monday. It is not holding over the intraday October high (1053.79), but it is holding over 1050 and demonstrated solid action with a test of the 18 day MVA (1043) on the low and rebounding to hold much of the gains accumulated on this run. This is still very good action as the index takes a rest after a strong move and before the jobs report. It could test the support yet again, but it is set well to make a higher low and again move to a new high.
DJ30:
Stats: -18 points (-0.18%) to close at 9820.83
Similar action to the other indexes, tapping the 10 day MVA (9775) on the low and snapping back to close just points lower. Volume backed off on the nice, orderly test. It is holding over 9800 and the October closing highs (9812). Very solid action leaving the Dow in good position to move on positive jobs news.
THURSDAY
Cisco energized the after hours market with techs jumping higher on the strong revenues ($5.1B versus $4.86B). After a nice, quiet session the news could very well send the technology sector higher Thursday. In addition weekly jobless claims are out before the open, and that could add some fuel if the number continues to slide.
If there is a strong open we have to be concerned once again about the rather common gap higher and reversal, particularly with the jobs report due out Friday morning. Indeed, there may be a jump higher on the open only to pullback once more in anticipation of the jobs report. After all, so much focus is on jobs and the rhetoric of how the economy will fail if jobs are not created soon. As we have been pointing out over the past few weeks, we feel this talk is premature as the economy was not even in the range of job creation based on the market recovery forecasting economic recovery. Further, we are going to see new jobs in new areas as the WMT announcement regarding chips in every piece of merchandise indicates. New technology being used in new ways many have not or cannot see because they view everything in the prism of the past. That is a long way around to say that though premature still, the jobs report will key the market action in this current move.
The indexes are well positioned to take advantage of good news on the jobs front. They are well positioned for bad news on the jobs front as well, being in the upper half of their ranges; any disappointment could be absorbed and they could still remain in their uptrends. Tomorrow we are going to continue to pick certain stocks versus broad market bets given that the indexes are already well into the move on this leg. As is typical in the market, there are still stocks ready to breakout or just starting their breakouts as well as stocks coming back to test their breakouts. The market moves in waves and in a healthy market that provides these kinds of opportunities when the indexes set up for the next move.
The tricky part tomorrow is how to play a gap higher. Again we will look at specific stocks and what volume they exhibit. On gaps we will typically let stocks make their initial run and see where they come back to hold on a test. The gap up point or the prior closing price or intraday high are points to watch to see if the stock holds and starts back up from there. Again, much will depend if they are showing good early volume and how the overall market is responding to the gap. If they sell and continue to sell after the gap we will typically stand by and let the stocks come back to see if they are able to make a turn back up. That of course is a main concern given how the market has responded to good news over the past month with gaps that roll over.
Support and Resistance
Nasdaq: Closed at 1959.37
Resistance: October high (1967) is now back in play. The near top of the channel (1977ish). The second, higher channel hit in September is at 2010ish. Then 2050 to 2075, the early January 2002 double top.
Support: The 10 day MVA (1937) held Wednesday. The 18 day MVA (1924). The September high (1913). The 50 day MVA (1873). 1860 to 1865. The March/August up trendline (1860).
S&P 500: Closed at 1051.81
Resistance: 1054 (October highs) is not completely broken. The December to June upper channel line at 1066ish. 1050 and 1080 from February 2002 lows. 1100 represents some early 2001 lows. 1150 to 1175, the early 2002 double top.
Support: The 10 day MVA (1048) and the 18 day MVA (1043). 1040, the September highs. 1030 to 1032 (early September highs). The exponential 50 day MVA (1028). The top of the summer range at 1015. 1010 the early September highs. 975 (December 1997 peak).
Dow: Closed at 9820.83
Resistance: The October high (9850) is again the near resistance to beat. 10,000 is the candle that attracts the moth.
Support: 9800 (April and May 2002 lows). The 10 day MVA (9775). The 18 day MVA (9733). 9686 (September high). 9588 the early September highs. The exponential 50 day MVA (9590). 9500 (June 2002 lows) is the top of the summer range.
Economic Calendar
11-03-03
ISM Index, October (10:00): 57.0 actual, 55.9 expected, 53.7 September.
Construction spending, September (10:00): 1.3% actual, 0.4% expected, 0.7% August (revised from 0.2%).
11-05-03
ISM Services, October (10:00): 64.7 actual, 63.4 expected, 63.3 September.
Factory Orders, September (10:00): 0.5% actual, 0.6% expected -0.3% August (revised from -0.8%).
11-06-03
Productivity, Q3 (8:30): 8.5% expected, 6.8% Q2.
Initial jobless claims (8:30): 380K expected, 386K prior.
11-07-03
Non-farm payrolls, October (8:30): 65K expected, 57K September.
Unemployment rate, October (8:30): 6.1% expected, 6.1% September.
Hourly earnings, October: 0.2% expected, -0.1% September.
Average workweek: 33.8 expected, 33.7 September
Wholesale inventories, September (10:00): 0.2% expected, -0.2% August.
Consumer credit, September (3:00): $5.3B expected, $8.2B August.
SUBSCRIBER QUESTIONS
Q: I have noticed several stocks pulling back towar their original buy points. How does one decide to 'buy on the pullback' or not?
A: Breakouts have about a 50-50 probability of coming back to test their breakout point after making the move. The stronger the breakout move, the less likely it will make a full test, but that is not always the case. In a weaker market there is more often a test.
If you get a test you have to ask as you have whether you want to add to the position or not. Of course we want a stock that has a good technical base behind it, emjoyed a strong breakout, and is having a nice, orderly pullback on low volume. By orderly we mean a steady pullback in a rather narrow intraday range. We don't like a stock that jerks back and forth on the pullback showing higher volume; that indicates a real fight between the buyers and sellers. A nice, lazy pullback on low volume shows few sellers; the buyers are just taking a breather.
We still don't automatically buy when we see all of the above attributes. We still want to see the buyers actually move in, i.e., we want to see the stock start back up on some solid, rising volume. That does not mean breakout level volume, just a good volume surge as it turns back up. Average volume would be enough if it has come back on below average trade. When we see that rebound off of near support or the breakout point and volume surging, that is where we can put in another buy. This is an especially good point to buy when you miss the original breakout. We have to admit we have taken a lot of nice photos of breakouts when we should have been buying. The test is a great way to get a second chance.
After that another great entry point is that first test of the 10 or 18 day MVA after the stock breaks out and starts its trend higher. This is a great add-to point as it is still early in the move (still a lot of upside) and you already have a good idea of the stocks' strength. Again you see an orderly pullback, a tap of the 10 or 18 day, and then a move higher on a solid volume increase.
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
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