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world stock market, us stock market
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3/22/04 Technical Traders Report
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Technical Traders Report Subscribers:
Full reports issue Monday, Wednesday, and Saturday. Tuesday and Thursday we issue a market summary and some solid plays for the next session.
MARKET ALERTS
Targets hit alerts issued Tuesday: None issued
Buy alerts issued: TECD; NPRO
Trailing stops issued: None issued
Stop alerts issued: VSAT
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 tries twice to show resilience but fails twice as well.
- Medicare to go broke in 2019. Good. It's about time we take a look at it.
- Market still fragile, but not in out and out downtrend.
No news allows relief bounce that cannot hold to the close.
Monday stocks were reeling in response to provocative world events and gapped lower. Tuesday there was a foreign news gap and some solid earnings reports and guidance. Stocks responded by popping higher. They could not take out near resistance, however, and started giving back gains. Showing a bit of moxie, they rallied again after NASDAQ held the Monday low. They were putting together a decent run in the last hour when they again reversed and tanked into negative territory to close. Not a massive sell off in points or volume, but again the market started higher and closed lower. Yes there was a bit of nibbling when NASDAQ was at the prior low, but overall the result was the same: higher open, lower close.
The afternoon selling was helped along by a report of further Middle East violence and word that Medicare would be bankrupt in 2019. Despite its attempts to rebound intraday, it is still very vulnerable to any roving news story, particularly the negative ones as the market showed Tuesday it will discount good stories in favor of negative ones. That is a classic sign of weakness and tells us it has not turned the corner yet in this correction.
THE ECONOMY
We are all 'doomed.'
The pace of economic reporting picks up Wednesday with February durable goods. The week thus far has been economically quiet, at least regarding official reports. Earnings have been quite solid and companies continue to raise their expectations about future profitability.
In addition there is the growing sense that the economy is slowing or is facing challenges it cannot withstand. Today was the latest with the report that Medicare would be insolvent by 2019. That is on top of the continued worry over deficits, the so-called social security 'trust fund' deficit, the outsourcing exaggeration, taxes on the 'rich,' etc. You cannot have a civil debate about these issues between republicans and democrats as the fertilizer and personal insults are spread rather thickly. It seems a lost art to concede a true point and then counter it with a more compelling argument or facts. Instead it is a game (a sham?) of overly dramatic statements made by the party leaders. We are reminded of the Fed Ex commercial where the mail room flunkies proclaim doom if a piece of mail does not arrive on time. If we roll back the tax cuts we are doomed. If we don't roll back the tax cuts we are doomed. If we allow one part of the President's economic plan we are doomed. You get the picture. It is hard to have a meaningful discussion of the issues if we cannot get passed this hyperbole.
The Medicare bankruptcy prediction is the latest on the list. The Bush plan will cost more than was previously acknowledged, the democrats decry this, but that is right after they predicted doom because the bill did not go far enough in providing benefits. We think it is great that Medicare is predicted to go bankrupt just as Social Security is going to go bankrupt. They should go bankrupt because the benefits they pay are in no way connected to the reality of the costs of those benefits. In order to pay those due to collect from either, the working US population would have to be increasing at a dramatically faster, almost geometric, rate. That, of course, would require even more population growth to pay for those now footing the bill. Ponzi scheme comes to mind, and indeed that is what it is. Those set to retire in 15 to 20 years are paying double fines: they are paying for more and more benefits to more and more retirees, and they are not going to have anyone behind them to pay for their bigger cut of benefits. As Greenspan said, the math simply does not work.
We could have another 'peace dividend.'
The good thing about these predictions of doom is that maybe, just maybe something will be done. We are not talking about the usual short term band aids such as the Kerry war cry 'tax the rich' or the republican gloss that growth cures every possible problem, but serious discussion about whether the government can pay for these policies. We are writing checks we cannot cash even with an economy that grows 8% per year. And, of course, it won't. There will be great times when there is a balanced budget, then when the economy stalls as it always will, there will be deficits. There is too much 'nondiscretionary' spending. We have to open the can of worms and start cleaning it out. Senator Corzine (D, New Jersey) just tonight lamented the deficits being passed on to future generations. When the discussion came around to Medicare and social security reform in the form of personal funding and ownership to cure much of the funding problems, he quickly changed horses and said it would be too costly to revamp the system. Worried about perennial deficits but unwilling to do what it takes to fix the system so there won't be perennial deficits. Instead 'tax the rich' and worry about economic lethargy tomorrow. Seems to be the same problem he is complaining of, just changing the cause but not the effect. That is no fix, and unfortunately, that is the level of the political debate: pushing the burden around in a shell game in order to be politically expedient in the current political climate.
What does this matter? Most feel we will somehow muddle through, and that is usually the case. Problem is, the economy and thus the market feed off of this debate with respect to expectations regarding the future. The market would respond very, very favorably to a serious attempt to reform social security and Medicare. First, it would put more money to be invested in stocks, bonds, commodities, etc. That is always good for the market. Second, it would work to get a handle on the impossible situation that has become social security and Medicare, and one of the primary worries about the economic future would be taken care of. That would be a tremendous boom for the equity markets, similar to the 'peace dividend' as a result of the economic collapse of the USSR brought about by President Reagan.
THE MARKET
The market is acting very defensive as it continues to sell lower. As we predicted over a month back, there would be predictions of the end of this cyclical bull and that the bear market was resuming just as there were predictions that the bounce off of the October 2002 lows had ended and that the downtrend was resuming. When a market sells long enough, the doubts naturally enter. When they become more pronounced, when more and more are sure the selling has set in, it typically is starting to subside.
Now if the economy was collapsing again or showing signs it was heading into a tailspin once more, then there would be concern. The economy, however, still shows very strong underpinnings. There are no signs of the kind of slowdown that would trigger such a change. Indeed, companies and CEO's are talking about how business is really picking up, how optimistic they are about the future. This is a long way from the guarded optimism and even denials of improved business when it was clear business was much better.
With solid economic fundamentals, it is thus good to hear the worries continue to rise. SOX broke down, small caps are going to tank, terror strikes are reality again (as if they had disappeared), deficits, scandal, and, of course, doom. With good economic underpinnings, a high level of pessimism is good for the market because it shakes out the sellers and helps speed along a correction. The market rallies and corrects, rallies and corrects. After the long downtrend, there are a lot of hair trigger bears, ready to proclaim the bear market has resumed. A bear market will resume some day without question, but that happens when there is deteriorating economics. Thus far, every major dip in this rally off the October lows (all two of them) has been proclaimed by some (and more are joining in on this correction) as a resumption of the bear market. That is the conditioning of an ugly three year downtrend when each normal pullback is viewed as a resumption of the downtrend. That is the opposite of the prior conditioning, i.e., that each dip was a buying opportunity.
There is no question that the market is not ready to start shooting back up. It is still in the process of trying to find the bottom to this correction. It is showing positives such as some extreme readings showing up last week, and again NASDAQ is trying to hold at the next support, bouncing up off 1900 on the lows while holding over the 200 day MVA. There is resilience there in the form of nibbling on the dips. In the downtrend it was flat out selling. There was no nibbling but day after day of selling. It may be hard to recall the difference but it is there.
Again, the market is not showing it is ready to rally as it still probes for the bottom and it still suffers some high volume down sessions. It is also showing some upside as well as some light volume down sessions. A bad news story still hurts it, and we have yet to see the complete transition from poor price/volume action to solid price volume action (rising prices on rising volume). Until that happens the market is in no position to buy into on a general basis. Indeed, we feel NASDAQ still has a 200 day MVA test in it before this pullback is over. We just have to be patient and let it form the bottom. It is starting to show signs of a bottom the past week despite the gap down Monday. Overall it still has work to do before stocks overall move into buy points as they complete their patterns.
Market Sentiment
VIX: 20.67; -0.91
VXN: 26.84; -0.31
VXO: 20.45; -0.98
Put/Call Ratio (CBOE): 0.68; -0.29
NASDAQ
Tapped at 1900 and the 200 day MVA again on the low and rebounded only to give that bounce right back. Very low volume.
Stats: -8.1 points (-0.42%) to close at 1901.8
Volume: 1.841B (-8.03%). Volume faded well below average on the volatile session, dropping on another down volume session. That makes three out of four of the last down sessions occurring on lower and overall very light volume. The distribution is starting to wane.
Up Volume: 832M (+590M)
Down Volume: 989M (-754M)
A/D and Hi/Lo: Advancers led 1.04 to 1
Previous Session: Decliners led 3.81 to 1
New Highs: 54 (+14)
New Lows: 30 (-9)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Another visit to 1900 and a look at the 200 day MVA (1887) brought in some buyers. The rest of the day the buyers and sellers traded barbs with the sellers getting the last word. No distribution, however, as NASDAQ tries to hold support at 1900. Look at the volume on NASDAQ the past two months. It has been selling for 9 weeks. After some high volume in January on the run to the peak and as it rolled over, volume has fallen to mostly below average the past 7 weeks as the index sells down. There has been distribution, but overall the selling is on light volume. It has really dried up the past two weeks. Typically there is high volume selling at the turn and the first drop in a base. Then it starts to dry up as the stock approaches the bottom of the base. Coupled with the action seen last week, we still believe NASDAQ is working on a bottom here as opposed to setting up for a further fall. It may play around with the 50 day MVA before it tries the next bounce, and that bounce will set up another test of the 200 day MVA level before the base ready to work on the next breakout.
S&P 500/NYSE
Hanging out in no man's land, but doing it on lower volume at least.
Stats: -1.45 points (-0.13%) to close at 1093.95
NYSE Volume: 1.432B (-1.09%). Volume continues well below average. Though it rose Friday and Monday on selling sessions, it was not massive distribution as volume was again well below average. That is a positive though it looks as if SP500 needs to go down and tap at 1075 on this pullback.
Up Volume: 737M (+621M)
Down Volume: 679M (-641M)
A/D and Hi/Lo: Advancers led 1.33 to 1
Previous Session: Decliners led 3.41 to 1
New Highs: 77 (+6)
New Lows: 18 (-11)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Gapped down Monday and held steady Tuesday on lower volume. It is below some resistance (1096-1100) and has just started its second leg lower since topping at 1160. The path of least resistance for the large caps appears to be lower to test that 1075 level. From there it would have good footing to start working laterally. If it does bounce before then, it has some trouble at 1112 on up to 1125. Much better for it to sell some more here and then make the rebound attempt.
DJ30
The blue chips are showing a doji over 10,000, giving up a gain but avoiding losses as volume dried up. It too has just started its second leg lower but is already trying to find support at the psychological support level at 10,000. Better support is at 9850 near the October and November highs. As with SP500, it could really use that test down to support to better set up the bottom of the base.
Stats: -1.11 points (-0.01%) to close at 10063.64
Volume: 215 million (average) versus 249 million Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Durable goods orders due before the market opens, and this is often a volatile number. The bigger issue, however, is whether the market is ready to deal positively with economic news yet or if it has more hashing out to do with respect to the election, new terrorism fears, who knew what and did what regarding 9-11, suitcase nukes, etc. The market has to go through corrections, and it has to get all of the dirty laundry accounted for when it does. Once all of that has been worked through then the market will wake up and once again like the economic data and earnings guidance, if that data and guidance is still good.
We still think the market has another leg lower to test next support, but NASDAQ is acting as if it is going to try and make another rebound from here. Serious overhead and it is not ready for the next breakout, but it could make the more sustained move that sets up the next test in the base that finally sets the bottom.
Support and Resistance
NASDAQ: Closed at 1901.80
Resistance: 1940. The 10 day MVA (1948). 1990 to 2000, the top of the late 2003 base. The exponential 50 day MVA (2005). The simple 50 day MVA (2044).
Support: Mixed tops and bottoms at 1900. The 200 day MVA (1887).
S&P 500: Closed at 1093.95
Resistance: 1106 is a May 2002 top and represents some early 2001 lows. The 10 day MVA (1112). Price resistance at 1125. The exponential 50 day MVA (1124) and the 18 day MVA (1121). The simple 50 day MVA (1136). The January high (1155). Next is 1159 (February highs) and 1160 to 1175 the highs in that double top that spanned late 2001, early 2002.
Support: The lower end of the range 1100 to 1096 is trying to hold. 1075 to 1070 from the December consolidation.
Dow: Closed at 10,063.64
Resistance: The 10 day MVA (10,216). The 18 day MVA (10,307). The exponential 50 day MVA (10,384). September/November up trendline (10,470).
Support: 10,000 to 9900-9850. 9859-9855 is the next real support
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
3-24-04
Durable goods orders, February (8:30): 1.5% expected, -2.3% January.
New home sales, February (10:00): 1.1M expected, 1.106M January.
3-25-04
Initial jobless claims (8:30): 338K expected, 336K prior.
GDP final, Q4 (8:30): 4.1% expected, 4.1% preliminary.
Chain delflator, Q4 (8:30): 1.2% expected, 1.2% preliminary.
Help wanted index, February (10:00): 39 expected, 38 January.
Existing home sales, February (10:00): 6.12M expected, 6.04M January.
3-26-04
Personal income, February (8:30): 0.3% expected, 0.2% January.
Personal spending, February (8:30): 0.5% expected, 0.4% January.
Michigan sentiment revision, March (9:45): 93.5 expected, 94.1 preliminary.
End part 1 of 2
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world stock market
us stock market
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