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us stock market, trend trading stock
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11/17/03 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Monday: AAI
Buy alerts issued: CASY
Trailing stops issued: BRLI; ACN
Stop alerts issued: PBY
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:
- Reasons to sell, but a 50 day MVA test brings back some buyers.
- Manufacturing continues its sharp rebound, inventories started to rise back in September, indicate 'sustainability'.
- Indexes dive to, bounce from, 50 day MVA.
Market continues sell off, finds some support at 50 day MVA.
Threats to Japan from Al Qaeda sent the Nikkei below 10,000, car bombs in Istanbul, and a US chopper collision in Iraq all set a negative tone for the open. The indexes made no pretext of even a token move higher, falling on the open and selling quickly to the 50 day MVA. It took several hours and a few re-tests, but Nasdaq and SP500 found support at the 50 day MVA. The ability to hold that key level (the up trendline on Nasdaq as well) prompted some buying and short covering in the last 2 hours, lifting the indexes well off of their lows with a bounce at the appropriate level.
The market finished lower on some pretty atrocious breadth and higher Nasdaq volume. Breadth improved vastly off the lows however, and rising volume on a 50 day MVA test is not necessarily a bad thing: higher volume potentially indicates buyers coming back in at a key support level. Moreover, semiconductors were relative outperformers with many posting gains on the session on some solid trade. They were more or less the lone wolves, but as we saw in the last rally, the semiconductors start back up while the rest of the market is still trying to find its feet. We expected this test and rebound and so far so good. There may be a re-test before it moves further, but the semiconductor gains suggest that may not happen market-wide.
THE ECONOMY
The week jumped right into the economic data and received two solid reports that indicate the economic expansion continues at a better than expected clip. These dealt with the supply side of the economy, the critical business sector that has been quiet for years. Thus those fretting over Wal-Mart missing its numbers are focusing on the demand side. The demand side has not been and is not and will not be the problem. The key is to keep the supply side increasing fast enough to keep up with demand to fight off inflation. If it does that there will be plenty of growth and jobs to boot.
NY Empire State PMI surges.
So the economy is slowing down in Q4, huh? After a 34.10 reading in October (revised up from the 33.7 originally reported), this manufacturing index was expected to cool off to 28.0, unable to maintain the 'hot' pace. As is typical in recoveries, the estimates undershot reality. The New York manufacturing index shot higher to 41. New orders jumped to 41.37 from 34.32. The employment sub-index was positive for the second consecutive month.
Many discount this report because it is only 2.5 years old and covers only New York. Some also said it shot higher last June, but the national ISM did not match the move that month. Short sighted, blind, or ignorant or a mixture of all three. It may be newer, but it has shown accuracy in forecasting the national manufacturing rebound. Moreover, the regional reports rise ahead of the national report; the pieces of the various regional manufacturing puzzle form up to make a stronger national number. That is what happened in late summer, and the NY report is forecasting another surge in manufacturing activity. The Philly Fed comes out later in the week and if it corroborates the NY report (expectations raised to 30.0 from 25.0 after the NY report) that is a strong indication the national ISM will again show another surge better than expectations, meaning a stronger Q4 than predicted by most.
September inventories beat expectations, post brisk rise.
September saw the largest gain in inventories since February, rising 0.3% versus expectations of no gain. Excluding cars, retail inventories rose 0.8%, the steepest climb since May 2000. This is a huge number because in early summer 2000 the economy was just starting to slow. Again those with little deductive reasoning yawned at the report because it was 'old.' They miss the implications.
First, Q3 GDP will be revised higher. It will come close to the 8% range when the revision process is completed. Huge. Second, sales climbed 0.6%, still outstripping the inventory build. Thus, even with the start of inventory building there will still need to be even stronger production to meet demand. Third, inventory building started in earnest in September, well before the main stream economists thought. Indeed, most were looking at the Q3 GDP report that showed diving inventories and concluded no production increases yet. As with the jobs recovery, the momentum has started much earlier than expected, and that means Q4 is looking strong: production is increasing but sales are still outpacing goods creation. That is great short term for Q4, but as discussed over the weekend, that is a potentially inflationary cycle. Manufacturers still have not ramped up capacity enough to meet demand, and prices could feel more upward pressure in the interim.
'Sustainability.'
Though just two reports, both continue the trend of better than expected economic data on the supply side, data showing increasing speed in the recovery versus the slowdown the conventional wisdom said had to occur after Q3. Now we are not saying Q4 will beat Q3 GDP, but it is not going to be the faint 3.5% or 4% the consensus. These same folks imply that the economic spurt is over and that the economic activity will not be great enough to generate job growth. This consistently improving supply side data, however, shows the 'sustainability' that the critics keep bringing up. Yes we certainly lived through a steep drop off and a very severe business recession that far exceeded the overall recession level. When it shows it is over, however, you need to fight the emotional response that it is just a blip that will crater quickly. It is human nature to fight change once the opposite idea is accepted. We need the doubters, however, or else there would be a mad rush higher that truly could not sustain itself. Thus, more power to the doubters.
THE MARKET
The headline numbers don't look good but the intraday action was much better as just about all major indexes tapped the 50 day MVA on the low and rebounded on rising volume. 50 day MVA tests on rising volume are fine, particularly when the index bounces solidly off that level. Breadth was horrible early on (-4:1 Nasdaq), but recovered significantly with the late rebound.
We were expecting this test after the action last week, particularly on Nasdaq as it has run far and was flirting with the 18 day MVA. The others joined in for good measure. It has done what it has needed, but now we see if makes a second test. On several occasions Nasdaq has tested the 50 day MVA for 2 to 3 sessions before resuming the move. With the chips already leading higher, however, it may not hang around that level too long, bouncing as it did in late October.
Market Sentiment
VIX: 18.6; +1.66
VXN: 27.81; +1.65
VXO: 18.82; +1.19
Put/Call Ratio (CBOE): 0.84; +0.15. Not quite up to the 0.95 or better we were looking for on the close that would signal a bounce in the trading range is coming. Does not mean it won't continue the bounce from here, but that reading would be additional evidence for a rebound off the trendline.
NASDAQ
Gapped lower, undercut the 50 day MVA, but held the trendline and rebounded on slightly rising volume.
Stats: -20.65 points (-1.07%) to close at 1909.61
Volume: 1.875B (+2.25%). Volume edged higher as Nasdaq tested the 50 day MVA and bounced in the last two hours. Rising volume on a 50 day MVA is a good sign of support at that level whether shorts covering or longs buying (or both). If shorts don't think it is going to break down below that level and cover, that is certainly a positive as the shorts don't have confidence in taking it lower.
Up Volume: 442M (+121M)
Down Volume: 1.397B (-49M)
A/D and Hi/Lo: Decliners led 2.22 to 1. Weak but much better than it was on the worst levels (-4:1).
Previous Session: Decliners led 2.04 to 1
New Highs: 131 (-106)
New Lows: 26 (+15)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Gapped down and fell to the March/August up trendline and slightly undercut the 50 day MVA (1894) before finding support and rallying. After a 7.5 month run it faltered near the top of the channel and needed a test back to key support. It held Monday and started the rebound. It would not be atypical for Nasdaq to test the 50 day again though the semiconductor rise Monday may preclude and re-test. At some point Nasdaq will have to slip into a deeper correction to consolidate this long move. It may not happen until the seasonal factors dissipate after the first of the year, but the length of the run has our attention as well moving forward.
S&P 500/NYSE
Not just a shakeout but a full bore test of the 50 day MVA and sharp rebound off that level.
Stats: -6.72 points (-0.64%) to close at 1043.63
NYSE Volume: 1.322B (-0.24%). Volume edged back, remaining below average on the 50 day MVA test.
Up Volume: 236M (-219M)
Down Volume: 1.062B (+189M)
A/D and Hi/Lo: Decliners led 2.33 to 1. Also finished weak but much better than the -3.8:1 reading early on.
Previous Session: Decliners led 1.4 to 1
New Highs: 87 (-249)
New Lows: 14 (+5)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Gapped below the 18 day MVA (1048) and then tanked to the 50 day MVA (1035) on the low and rebounded sharply just as it did on the late August test of that important level. We were looking for a shakeout, and it gave a quick, fast test all the way down to that support, showing lower volume as it did. That is a shakeout. Now we see if it can resume the rally from here or needs a further test. The sharp rebound indicates it is ready to make the continued upside move.
DJ30:
Stats: -57.85 points (-0.59%) to close at 9710.83
Followed the action of the other indexes, gapping lower, falling to the 50 day MVA (9644) and then rebounding to recoup more than half of the loss. Volume fell back to near average (204M, 222M Friday), mimicking the shakeout on SP500. Again, very similar action to the late October gap, test, and rebound. After the summer consolidation and stop and go action following that breakout, the Dow looks to be putting together a sustained run up the 50 day MVA.
TUESDAY
The economic pace continues with the CPI before the Tuesday open. There is some inflation anxiety surrounding this report, but the rise in the PPI seen last week most likely will not filter into this report. In any event, there is little in this report that will add much to any upside action or even downside action.
The indexes made their 50 day MVA tests in one session and started to bounce intraday. SP500 and DJ30 made sharp rebounds. The SOX undercut the 18 day MVA intraday and rebounded to hold that level on the close. Indeed, many semiconductors posted gains. The market made the bounce, now will the buyers come in and resume the move higher. The semiconductors obviously have our attention as they have been market leaders, have shown relative strength on the pullback, and started higher ahead of the market. Hard to ignore them as they led the last move, starting back up ahead of the rest of the market just as they did Monday.
We would have preferred 2 to 3 days of a pullback, but the one day test and rebound kept us in many good positions that simply tested support and started to bounce back with the market. We have said it often before: the market does not play by the set of 'perfect' rules but instead moves within general parameters. Thus if we see the moves back up Tuesday we will participate and see if this is already starting the holiday run after a quick blow down to the 50 day MVA.
The long run higher on Nasdaq keeps us concerned as we know a correction is needed and will come at some point during the next 3 months. About the only thing delaying it is the seasonal move and the desire for funds and new money to chase some of the gains, anticipating a holiday rally. The market has certainly acted like a market where new money keeps coming in at each move lower, seizing on the opportunity to elbow its way in. the indexes gap lower, typically a very negative technical indication, but then recover and make a new high. That cannot keep the market rising forever, but as yet it has not shown heavy distribution, rising volatility, or a trendline break that would signal the correction is starting. Thus if this bounce continues we will look to take advantage of the rally to the next high in the trend to take positions to bank some short term gain that we will always let run longer term if it will.
Support and Resistance
Nasdaq: Closed at 1909.61
Resistance: The 18 day MVA (1937). 1975 has turned into some resistance. November high (1992). The near top of the channel (2008). The second, higher channel hit in September is at 2040. Then 2050 to 2075, the early January 2002 double top.
Support: The September high (1913) tried to hold briefly Monday but failed. The March/August up trendline (1900). The 50 day MVA (1893). 1860 to 1865.
S&P 500: Closed at 1043.63
Resistance: The 18 day MVA (1048) and the 10 day MVA (1050), tapped on the Monday high. November high (1062). The December to June upper channel line at 1075. 1080 from February 2002 lows. 1100 represents some early 2001 lows. 1150 to 1175, the early 2002 double top.
Support: The exponential 50 day MVA (1035). 1030 to 1032 (early September highs). The top of the summer range at 1015. 1010 the early September highs. 975 (December 1997 peak).
Dow: Closed at 9710.83
Resistance: The 18 day MVA (9763). The October high (9850). The November high (9903). 10,000.
Support: 9686 (September high; 9659 intraday). The exponential 50 day MVA (9644). 9588 the early September highs. 9500 (June 2002 lows) is the top of the summer range.
Economic Calendar
11-17-03
Business inventories, September (8:30): 0.3% actual, 0.0% expected, -0.4% August.
NY Empire Index, November (8:30): 41.0 actual, 27.0 expected, 34.10 October (revised from 33.7).
11-18-03
CPI, October (8:30): 0.1% expected, 0.3% September.
Core CPI: 0.2% expected, 0.1% September.
11-19-03
Housing starts, October, (8:30): 1.850M expected, 1.888M prior.
Building permits, October (8:30): 1.855M expected, 1.875M September.
11-20-03
Initial jobless claims (8:30): 365K expected, 366K prior.
Leading Economic Indicators, October (10:00): 0.2% expected, -0.2% September
Philly Fed, November (12:00): 30.0 expected, 28.0 October.
11-21-03
Treasury Budget, October (2:00): -$72.5B expected, -$54.1B September.
SEMINARS ON CD
http://www.stockseminarsonline.com
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End part 1 of 3
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