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12/15/03 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Monday: None issued
Buy alerts issued: SLVN; SLAB; TTMI; SMTC
Trailing stops issued: GISX; OEX
Stop alerts issued: LTXX; TRFX
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 shows it was not holding back because of Saddam as it jumps and dumps.
- Wal-Mart at low end of December range, but WMT is not the end shopping stop this year.
- Semiconductors swoon and drag Nasdaq back to the 50 day MVA.
- Subscriber Questions
Big point swing on good news yet again.
We heard some pre-market predictions of 'huge' upside gains on the news of Hussein's anti-climatic capture over the weekend. With the market still showing a lot of wear and tear from a long run higher, we were not so sure and said so in our late Sunday and pre-market Monday updates. The Nikkei jumped 3% and held the gains overnight. Europe was more modest at mid-session. Oil was predicted to fall $2 - $3, but it was just down 15 cents. Great news again hit the wire, but again the market was not reacting as expected, or more accurately, not as many would think it should react.
Sure it gapped sharply higher, but once again that gap fell back almost from the start. It is not an automatic that great news produces a sustained rally after the market has already put in two year's worth (in some cases more) of gains since the October low. The same factors that were causing the leading indexes to buck and stall are still in place. Hussein's capture was not the last item holding market back. Great economic news has failed to move the market higher the past two months, and great economic news means better earnings, and that means higher stock prices. The fact that the market is not moving on that news shows pretty clearly that the rally in anticipation of the news has snagged and it needs to continue working laterally further or to correct and then move again.
THE ECONOMY
Wal-Mart at low end of range and that had more impact than Saddam.
As noted, earnings drive stock prices and earnings result from improving economics. Expectations are high for the holidays, and over the prior two holiday seasons WMT has led the pack with an economy minded consumer looking for discounts in an economy mired in recession. The conventional wisdom (or, more accurately, the crowd) thus looks to WMT again as the barometer of the holiday season. If you recall, in 2001 analysts were looking at the old line department stores and were fairly well blind-sided when they stank and WMT sales soared. After finally learning about value and discount oriented recession shoppers, they cannot readjust now that the economy is expanding and consumers are feeling a lot better. They look to WMT again and see WMT's warnings and low end sales signaling a weaker than expected holiday season. They have, not however, taken into account the improving investor psyche and the strong sales from Nieman Marcus, Tiffany, Nordstrom, and other higher end sellers. Nice gifts are 'in' once again, a clear sign of confidence, and something that is eating into WMT's take this year. Even Target is taking sales from WMT because it is considered higher scale. If you look only to WMT, you miss the bigger picture and predict a weaker holiday season. You would also be wrong.
In any event, the market was somewhat dismayed by the WMT report and many of the discount retailers took it on the chin. The drag on the market was noticeable and one of the contributors to the weak session. It was just one factor. It was already showing the strain and the gap higher was something that was again used to sell into.
New York Empire Index beats expectations.
This measure of regional manufacturing was expected to slow, and it did, just not by as much as anticipated. December New York manufacturing came in at 37.4, better than the 35.0 expected but still significantly lower than the 40.14 prior. Again manufacturing is showing progress though a bit slower this month. Overall it is still in a good trend of improvement.
THE MARKET
The semiconductor index rallied early but rolled over and plowed back through the 50 day MVA. Nasdaq gapped higher and then collapsed back to the 50 day MVA on rising volume, a 62 point swing. That is amazing. The small cap and mid-cap indexes are still above their 50 day MVA, but they are setting up patterns very similar to Nasdaq, i.e., a lower high following the December high. All of the leading indexes are struggling and have set up or are setting up bearish patterns. On top of that the recent leading SP500 and DJ30 showed reversals of their own, rallying sharply just to give it all back and more, showing dojis at the top of a run. That suggests a momentum change and potential pullback on these indexes that have enjoyed gains on the back of defensive and cyclical stocks.
There were other indications of weakness. Good news was again ignored. Volume on Nasdaq surged late as selling intensity increased. The indexes rallied, rolled over, and closed on the lows, turning gains into losses. Breadth mushroomed to the downside late in the session. Many stocks and indexes are still in uptrends, but they again struggled when they should have rallied. Back in late summer they would have surged on this news. Now that they have rallied for 10 months not even counting the surge off the October low, the look is one of exhaustion.
When you look at Nasdaq, SOX and even the small and mid-cap indexes, basically all of the leaders from the bottom, the market is screaming that it is in trouble. It is not an overall collapse as medical, gold, industrial products, and cyclicals are still performing at least on a stock by stock basis if not the entire sector. The leaders that sparked and led the move, however, are struggling, and it is hard to see the market overall moving significantly higher while they consolidate or correct. There may be a further halting rise through the holidays, but it will be selective and it will be hard-earned ground.
Market Sentiment
VIX: 17.23; +0.82
VXN: 27.07; +1.21
VXO: 16.91; +0.96
Put/Call Ratio (CBOE): 0.7; -0.05
NASDAQ
Gapped higher, and then sold off 62 points from the high to close just over the 50 day MVA on rising volume. We caught Saddam! There was much rejoicing. Yeaaaa.
Stats: -30.74 points (-1.58%) to close at 1918.26
Volume: 1.831B (+25.28%). Friday volume was low but this was still a significant jump, moving back above average as it sold hard to the 50 day MVA.
Up Volume: 397M (-459M)
Down Volume: 1.401B (+882M)
A/D and Hi/Lo: Decliners led 2.38 to 1. Modestly downside breadth at lunch turned ugly in the last hour.
Previous Session: Advancers led 1.67 to 1
New Highs: 257 (+77)
New Lows: 14 (0)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
After making a higher low last week starting with the Wednesday intraday reversal, Nasdaq looked as if it might just try to retake the uptrend and provide a holiday rally. It may still do just that, but it made it a very hard road with the Monday gap and tank to the 50 day MVA (1916) as more Nasdaq stocks were dumped as opposed to being accumulated. It can still make a higher low if it holds at the 50 day MVA, but again, it is making it difficult. Indeed, this move is in the process of making a lower after the twin peaks in November and early December. That is a pattern very similar to the chip stocks that were breaking down with abandon on Monday. This is the pattern the SP600 and SP400 (small and mid-cap indexes) are in the process of forming. As usual the chips lead, Nasdaq follows, and the smaller caps are right behind Nasdaq. Techs are at a key level here at the 50 day yet again; when you start hanging around in a questionable neighborhood, going back with more frequency, that is usually a sign of trouble. No we are not saying marijuana leads to cocaine (after all even Clinton didn't inhale), but selling to the 50 day MVA with increasing frequency indicates fewer and fewer buyers wanting to step in and support tech stocks right now.
S&P 500/NYSE
Rallied to next resistance at the February 2002 (1080) lows and the uptrend upper channel line then reversed and sold off on rising, above average volume.
Stats: -6.10 points (-0.57%) to close at 1068.04
NYSE Volume: 1.45B (+20.03%). Volume surged late, jumping well above average and matching the strongest trade of the month.
Up Volume: 516M (-259M)
Down Volume: 928M (+508M)
A/D and Hi/Lo: Decliners led 1.58 to 1. Swung from very positive to slightly negative by the close.
Previous Session: Advancers led 1.92 to 1
New Highs: 435 (+92). Still significant new highs on the reversal, indicating that there was not wholesale selling of the NYSE stocks. Much depends on how the small and mid-cap indexes form up their patterns, ie., follow the SOX and Nasdaq, or make a higher low.
New Lows: 10 (-1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Rallied to 1083, right at the February 2002 lows, and then rolled over on volume. Easily held above the 10 day MVA (1065) and 18 day MVA (1061), and thus holding the breakout over the November highs (1063). Cyclical and defensive stocks continue to hold up and that is keeping this index holding up.
DJ30
Stats: -19.34 points (-0.19%) to close at 10022.82
Volume: 247M versus 177M. Volume surged as the index rallied sharply and then gave the entire move plus 20 back (116 points).
Same old action, a sharp rally that reversed on volume. The slight point loss from the Friday close kept it in the uptrend as it continues to hold the breakout over the October and November highs (9850, 9903). The candlestick pattern is a tombstone doji. After a solid run up off the 50 day MVA (9762) that can signal a shift in momentum that leads to some selling. Lots of support, however at the prior highs as well as the 10 and 18 day MVA (9944, 9891). Thus there is no imminent breakdown apparent, but we question as to how far the Dow and SP500 can rise if SOX continues to fall and is joined by a Nasdaq breakdown and then a small and mid-cap failure.
TUESDAY
Tuesday is peppered with economic data (housing starts, CPI, production, capacity utilization, current account). In the current state of the market this data can hurt a lot more than it can help. With SOX breaking lower, we will be watching Nasdaq at the 50 day MVA to see how the market responds to the late blow down Monday. The market has managed to recover time and again during this uptrend, but that happens in all uptrends. It is the continued struggle to make headway in the face of continued good news that sums up the market. The breakdown of the semiconductors is another major problem, and if Nasdaq continues to follow and breaks down as well, a much needed correction is on.
Chips were already set up for the breakdown, having tanked and then rallied back up to test the breach of support. Other stocks will set up similarly if Nasdaq and the smaller cap indexes break down as well. We will be watching for those to set up and then fail.
At the same time many stocks continue to hold support and overall exhibit decent price/volume action. If Nasdaq and the smaller cap indexes give way they may be on borrowed time, and if they start breaking down we will close those we have trades on and look to the downside on other breakdowns. Gold stocks and others are still shining, and we will look at great patterns to the upside, but we are not going to go too wild to the upside until we see what Nasdaq and the smaller cap indexes do.
Support and Resistance
NASDAQ: Closed at 1918.26
Resistance: The 18 day MVA (1937). Some price resistance at 1950. The March/August up trendline (1975). November high (1992), December high (2000). The January 2002 double top (2044 to 2099).
Support: The 50 day MVA (1916). 1875 to 1880 is the bottom of the November range.
S&P 500: Closed at 1074.14
Resistance: 1080 from February 2002 lows. The December to June upper channel line at 1084. 1100 represents some early 2001 lows. 1150 to 1175, the early 2002 double top.
Support: November high (1061.40-1064). The 18 day MVA (1061). The exponential 50 day MVA (1048). 1030 to 1032 (early September highs).
Dow: Closed at 10,022.82
Resistance: 10,259 (January 2002 high). 10, 353 from May 2002 high.
Support: The November high (9903). The 10 and 18 day MVA (9944 and 9891). The October high (9850). The exponential 50 day MVA (9762).
Economic Calendar
12-15-03
NY Empire state index, December (8:30): 37.4 actual 35.0 expected, 41.14 November (revised from 41.0).
12-16-03
Consumer Price Index, November (8:30): 0.1% expected, 0.0% October.
Core CPI, November (8:30): 0.1% expected, 0.2% October.
Housing starts, November (8:30): 1.914M expected, 1.960M October.
Building permits, November (8:30): 1.901M expected, 1.973M October.
Current account, Q3 (8:30): -$136.1B exepcted, -$138.7B Q2
Industrial production, November (9:15): 0.5% expected, 0.2% October.
Capacity utilization, November, (9:15): 75.4% expected, 75.0% October.
12-18-03
Initial jobless claims (8:30): 365K expected, 378K prior.
Leading economic indicators, November, (10:00): 0.3% expected, 0.4% prior.
Philly Fed, December (12:00): 25.o expected, 25.9 November
SUBSCRIBER QUESTIONS
Q: How do you determine a buy point?
A: The most important factors in determining buy points are and support and resistance levels, and the kind of pattern. Anytime there is a price the stock has hit several times makes it that much harder for the stock to break above it, so when it finally does that is usually the best time to buy (since the resistance was broken that now tends to serve as support, so the stock for the time at least will be heading higher). In placing a buy point for a breakout from a certain pattern, we always look for the point where the stock will clear the most likely resistance, designating a buy point just above that. In a cup with handle, the buy point is usually about a dime or so above the high price in the "handle". For an ascending triangle, just above the highs in the pattern which are forming usually strong resistance (which is why breakouts from this pattern can be powerful). The same follows for a pennant pattern, or a ranging (rolling) pattern. In a double bottom, the breakout or buy point is usually just over its handle high, or the middle hump if there is no handle.
The buy points in such patterns are usually always plotted at the same location because at those points, resistance tends to be the greatest.
The reverse is true for downside plays if a stock falls through major support (again, a level where the stock has hit the same price again and again), then tests it and fails to break up again through what's now resistance, then the buy point is usually going to be plotted somewhere just under the resistance, likely at one of the lowest prices it's hit while trying to recover. It pretty much mirrors what happens in upside breakouts.
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 3
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