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world stock market, us stock market
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11/22/03 Technical Traders Report
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Technical Traders Report Subscribers:
Thanksgiving Holiday Schedule:
The stock market will be closed Thursday November 27 and will close at 1:00ET Friday November 28. Reports will issue as usual Monday and Tuesday. Barring any major market event, the following is the report schedule for that week:
Monday and Tuesday: Normal reports issue
Wednesday: Market update, play tables
Saturday: Market update, highlight best plays for Monday, play tables
Alerts: Will issue as normal.
MARKET ALERTS
Targets hit alerts issued Friday: CKSW
Buy alerts issued: WMS (bonus alert); SOX
Trailing stops issued: TARO
Stop alerts issued: None issued
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:
- Market slips out quietly, holding the week's range.
- More solid economic data, holiday season a breakout for the consumer.
- Trying to hang on at the 50 day MVA.
Expiration is a low volume sleeper.
It was a week where fears emerged as the market took a breather, trying to hold the uptrend after coming down from the upper end of the channel. The dollar, terror, trade, and mutual fund fraud all had their effect. SP500 threatened to break out to the downside of its range for the week as did the Nasdaq 100, but they both managed to rally back. Some of the indexes made it back to the 50 day MVA (barely), some did not. Volume was down, and in the end they managed to hold the range for the week. That keeps them struggling to hold the uptrend, but given all of the negative news that was not bad action, just more of the low volume consolidation that is more or less holding the uptrend.
This is the most serious test in this uptrend since it began, and the market starts out the week struggling to hold the range in what is typically a light volume Thanksgiving week. The session before and after Thanksgiving can be some of the best moves of the year, but seasonality was ignored in September and October. The market is in recovery mode after a long downtrend and the usual seasonality has been on hold, but of course, this seasonal move (basically upside around Thanksgiving) is in line with the overall post-downtrend rally. It thus can drift higher and stay with the trend. There won't be a lot of volume this week but if seasonality does arise there could be a nice recovery to set it up for the following week.
THE ECONOMY
The week was another solid one for economic data, with forward looking indicators showing solid gains. Leading economic indicators rose 0.4%, doubling expectations. It is important to realize that when the economy started to recover, the LEI showed a 0.1% to 0.2% gain. The October LEI at 0.4% indicates that the expansion continues to pick up speed. January to April, the period this last LEI covers, should be strong, much stronger than expected.
Intel CEO turns more optimistic.
Mr. Barrett was more upbeat Thursday night, repeating how strong Q3 had been ahead of Q4 that is typically its best quarter. Barrett is predicting double digit growth in 2004. Intel continues to see expansion in the wireless area, one of the new tech growth areas that is driving a lot of tech activity. Chips overall did not explode higher on the news. Indeed, they were starting to breakdown out of the range for the week but managed to recover. The individual chips remain mixed. Some are in great shape to move higher, others are in less than outstanding position to rally though not breaking down. This key sector is still teetering below the 18 day MVA but holding well above the 50 day MVA. That leaves it in decent shape to recover, though a quick test of the 50 day MVA looks imminent.
Consumer ready for a breakout holiday season?
A big slower October in retail and WMT saying it would only make the low end of expectations for early 2004 put another finger of fear into the market. What if the consumer did not continue to spend? What if the buying seen in Q3 was a one-time event? That was a weight on the market as well. As we noted in the Thursday report, that continued fear is a good sign. There is still a lot of disbelief that the recovery can last, and that still puts it in the early stages.
Other than WMT, retail stores are announcing great earnings, coming in well ahead of expectations. JWM on Friday was the latest in a round of very solid earnings. ROST on Thursday, CPWM before that. The list is long. Moreover, they are guiding higher for the future as well.
Those are the results reported. We have been conducting our own surveys of retailers in various regions. Where in the past there may have been shoppers but fewer buyers, now there are more shoppers and all of them have packages. Talking with some store managers we are hearing that they are having a hard time keeping holiday decorations in stock. They are noting a surge in buying the accouterments of the season. Some are having to beg with suppliers to get more allocations.
This is the third holiday season after 9-11. After holing up, 'cocooning' as it is called, for a couple of years we are seeing citizens returning to those things that they like to do. This past summer there was a surge in airline travel due primarily to the consumer starting to head out across the country again. Las Vegas and other convention cities are reporting a surge in convention business again. We have noted in the past that the idea there is no pent up demand is bogus. Consumers turned to houses and Pier 1 Imports after 9-11. The store managers are seeing customers shopping with more, well, holiday spirit. They are buying more than gifts, getting the things that add to the holiday spirit. This is more of an intangible we are measuring here, but it is something that all of the stores we talked with said has been missing the previous two holiday seasons. That indicates to us a much stronger holiday shopping season than anticipated.
Protectionism returns.
In the late 1920's a wave of protectionism swept over the world. Unfortunately that coincided with a central bank that feared prosperity about as much as the late 1990's Fed did. The 1920's were boom times without inflation similar to our late 1990's. The central bank, however, was certain inflation was coming though, as in the late 1990's, there was no tangible indication. A roaring stock market and strong consumption, however, convinced the central bank that inflation was just around the corner. Disinflatan Thus, it raised interest rates again and again, but as is the usual case with a roaring economy, there was no immediate impact. The economy kept booming and the market kept climbing. Finally the bank made a definitive move, jumping rates an entire 100 basis points at once. That was the move that finally broke the market. The prior interest rate hikes had started to slow the economy enough to start the slide into recession. In other words the cumulative hikes peaked the economy and it was on the downslide. As usual, when the market reacts to such increases, it reacts all at once, a kind of cumulative effect.
That rate hike campaign was unfortunately coincident with a world turning to a protectionist mode. Trade tariffs were imposed on just about everything as world economies wanted a piece of the action in the booming US. The bottom fell out on the world economy as trade trickled and equity markets imploded. The repeating historical irony is that the central bank's fear of inflation led to a series of actions that ultimately led to deflation. They certainly avoided inflation, but ended up with something far, far worse as the world slid into depression and asset values fell to pennies on the dollar. This last round of rate hikes so decimated the economy that it went from boom to bust, and it too has skated on the verge of deflation. There was not, until now, protectionist activity, but with the terror threat, Wall Street and corporate scandal, other pressures exist.
The protectionist ripple that is trying to become a wave is, for now, political posturing. Bush is trolling for textile worker, steel worker, farmer, and timber worker votes. Canadian timber tariffs, a huge farm subsidy bill, steel tariffs, and now a bra tariff against China. Bush touted free markets, domestically and abroad, when running for office, and the farm bill in his first year raised some eyebrows. Given the first round of tax cuts, however, it was glossed over. These latest tariffs clearly demonstrate Bush is for free trade and open markets only when they suit him.
In fairness he does have a plan, and that is playing hardball, making bilateral agreements with like-minded partners and using that as leverage on others wanting to trade with the US and take part in the huge US consumer market. There is a method to the actions. If they
are short lived as a political motive would indicate, then they will most likely have little impact on the economic outlook and thus the market. The election is still a year away, however, and promises made to certain industry groups may have to be kept in order to achieve the political ends. This is how administrations get into trouble. They compromise on issues that run counter to their bigger goal. They undermine the success of their own agendas by hamstringing them with side deals and issues. Bush's tax cutting and supply side economic stimulus is working, but he is also playing the corners with these protectionist policies that cast doubt on his commitment to the market principles that have helped jumpstart the market and the economy after a plunge from lofty heights.
THE MARKET
The market fell to the bottom of the range to start the week and stayed right there, riding out options expiration on lower volume and in a narrow trading range. Ignoring everything else, after that early week gap lower, the action was on lower volume and more consolidation than distribution. Holding roughly the 50 day MVA and up trendline on lower volume is not bad.
The gap down is technically bad; when indexes gap lower that is a sign of big money moving out just as sure as higher volume selling. Of course Nasdaq gapped lower in August and October when it tested the 50 day MVA, and managed to climb back for a continued rally in the uptrend. The move is older now, and this is the longest stint at the up trendline since the trend began in April. It is trying to consolidate for another move higher, but the fact that it is not generating a sharp bounce off of this level as it did in the past shows the market is a tired from the long run and weighed down some by DTT (dollar, trade, terror).
This is definitely a time to show some patience, and let the market makes its move before reacting. We were sitting on our hands a bit last week, letting the consolidation work through, letting stocks that were mostly holding support and avoiding the breakdowns consolidate as well.
There is still risk for another quick downside shakeout. Nasdaq and QQQ are still below their up trendlines, and SOX is below the 18 day MVA and at risk of a quick trip to the 50 day MVA. That shakeout early in the week would set the market up for a nice seasonal rally into Thanksgiving.
Market Sentiment
VIX: 18.98; -0.5
VXN: 29.08; -1.41
VXO: 19.89; -0.31
After breaking back over the 50 day MVA, VXN, and VIX edged back to end the week. The break over the 50 day MVA has some significance, but volatility is still low in the big picture. We would expect to see volatility spike up sharply from here if the market was at a point it was going into a more significant selloff. This lower volatility does make things better for option buyers as that part of the option, a very fugacious part, keeps the prices down. For option sellers that is not so great as there is less premium to take in on the sale.
Put/Call Ratio (CBOE): 0.8; 0. Holding steady in the high part of the range. A move into the mid to upper 90's has foreshadowed rallies in this uptrend. Another shakeout with SOX down to the 50 day MVA would probably do the trick.
NASDAQ
Nasdaq 100 was under the gun, breaking below the lows of the week, but there was not enough volume to push it lower. That closed the indexes within their ranges and kept the market makers from suffering too much angst as the out of the money index puts and calls expired worthless.
Stats: +11.96 points (+0.64%) to close at 1893.88
Volume: 1.626B (-9.6%). Volume was below average all week, and tailed off a big more as it tested lower and rallied back to the 50 day MVA. Not bad for a consolidation and break of the 50 day MVA. Higher volume on that Tuesday breach of the 50 day, but it did not get worse.
Up Volume: 906M (+372M)
Down Volume: 664M (-581M)
A/D and Hi/Lo: Advancers led 1.22 to 1
Previous Session: Decliners led 1.61 to 1
New Highs: 120 (-4)
New Lows: 19 (+4)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Nasdaq was once again volatile, but in a narrower range. It tested the lows mid-morning and then rallied back to the 50 day MVA. Low trade indicated no selling, no buying, just another standoff. While that is not bad action for a consolidation, the question is whether it is enough to send Nasdaq back higher this week, or if the break of the trendline spells the end of this run for a longer test. Seasonality suggests it will attempt a bounce, but it may take another shakeout to scare out the rest of those ready to sell. We cannot expect much volume this holiday week to drive it, but if the trend holds, it does not need volume to continue an existing trend. Serious resistance will be found at the 18 day MVA (1920) as it roughly coincides with the top of last week's range (1926), the point where the index gapped lower. If it rallies to that point and cannot overtake it by the end of the week, it is set up for some downside the week after Thanksgiving.
In sum, the index is at an inflection point, trying to consolidate and retake a break below the up trendline after a long move in this trend. It will be hard to gauge its condition based on light volume trade next week, but with expiration over, it will be able to move out of last week's range. We expect another dip to test the range and then a rise into Thanksgiving.
S&P 500/NYSE
Broke out the bottom of the weekly range but managed to recovery the 50 day MVA on low volume, the point it needs to hold.
Stats: +1.63 points (+0.16%) to close at 1035.28
NYSE Volume: 1.249B (-2.52%). Volume remained below average for the week, coming in even lower Friday. No distribution, just consolidation as it sold back to and held support.
Up Volume: 729M (+368M)
Down Volume: 504M (-418M)
A/D and Hi/Lo: Advancers led 1.49 to 1. Almost all week the A/D line was modest on both sides of the ledger, showing that same orderly consolidation.
Previous Session: Decliners led 1.59 to 1
New Highs: 122 (-1)
New Lows: 11 (-2)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 continues to hold up well, maintaining the integrity of the 50 day MVA (1035) on the low volume pullback last week. Friday it undercut that level intraday but rebounded to close just over that support. It is still in good shape after the summer trading range, making higher lows and higher highs, though hardly powering ahead. It has acted more as the anchor (in a positive sense), tenaciously holding the 50 day MVA and keeping the rest of the market in line during the pullback. Friday it showed a very nice doji on the 50 day MVA; after a pullback that often indicates a rebound ahead. Good timing for a seasonal drift higher into Thanksgiving.
DJ30:
Stats: +9.11 points (+0.09%) to close at 9628.53
Volume: 209M versus 205M
DJ30 remained below the 50 day MVA (9644) to close the week, but after undercutting the weekly range it too rebounded. Volume edged just above average as it tapped the 50 day MVA on the high but was not ready to make any move. A doji as well on the candlestick chart. Coupled with the rising volume and the pullback, that is an indication it is ready for a bounce as well. Similarly situated to the SP500, it was held back last week by problems with individual names. There were enough good moves to send it higher, but they were offset.
THIS WEEK
The market is at an inflection point with all of the large cap indexes trading around the 50 day MVA and the small, mid-caps and SOX just below the 18 day MVA. Every index is in pretty decent shape though Nasdaq is at some risk, trading below its up trendline and struggling to hold the 50 day MVA after undercutting it three times in the week. It has shown many times on this run that betting against it too much is risky.
Thus with the seasonal factors here and an uptrend that is still in place, we are looking for a move higher into Thanksgiving, but first a potential test lower by SOX and the smaller cap indexes to test their 50 day MVA as well. That would provide the shakeout to give the market direction, and now that expiration is history the market will actually be able to make a more sustained move. There was something of a shakeout Friday, however, as SOX and the largest cap indexes undercut their ranges for the week before rebounding.
It is a short holiday week, but it is packed with economic data. The next GPD revision, consumer confidence, spending and income, Chicago PMI to name the big ones. With light trade and good data, the market would be set to actually use the information to rise into Thanksgiving given that it has sold back already.
Such a move won't tell us much other than the trend is in effect as stocks tend to move with the existing trend when there is low volume and no major reason to change the character. When (if) volume comes in the following week things may change, but there also may be an earthquake, tornado, or flood somewhere as well. The point is though Nasdaq is showing some wear and tear, there has not been a major shift or breakdown, and we want the market to show us the move at this key level. We will be ready either way, but we anticipate a modest test lower and then a rise back up into the uptrend.
Support and Resistance
Nasdaq: Closed at 1893.88
Resistance: .The March/August up trendline (1911). The September high (1913). The 18 day MVA (1920). 1975 has turned into some resistance. November high (1992).
Support: The 50 day MVA (1893) is right in the line of fire. 1875 to 1880 is the bottom of the week's range. 1860 to 1865. 1800.
S&P 500: Closed at 1035.28
Resistance: The 18 day MVA (1046) and the 10 day MVA (1043). November high (1062). The December to June upper channel line at 1080. 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 9628.53
Resistance: The exponential 50 day MVA (9644). 9686 (September high; 9659 intraday). The 18 day MVA (9719). The October high (9850). The November high (9903). 10,000.
Support: 9588 the early September highs. 9500 (June 2002 lows) is the top of the summer range.
End part 1 of 3
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world stock market
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