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world stock market, us stock market
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3/27/04 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Friday: None issued
Buy alerts issued: CMRG; TASR
Trailing stops issued: None issued
Stop alerts issued: None issued
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SUMMARY:
- A modest continuation rally collapses late.
- Jobs report is the focus in a big week for data even as reports improve after a breather.
- Continuation rally falters at an important point, needs to continue bounce next week.
- Pessimism showing a nice rise.
Uninspired but doing what it should until a late, pre-weekend sell off.
Stocks were hung over from the huge Thursday rebound, but managed to find the coffee and maybe some of the hair of the dog as they shook off a lunchtime attempt to sell and rallied into the afternoon. It did not hurt that income and spending continued their growth path and that final Michigan sentiment was higher than expected; after all of the false worry about the economy and consumer being brought out in the election year, some continued solid economic data was welcome. Of course, the jobs report next week will get all of the focus. Even with the solid economic news, volume was weak, breadth was so-so, but there were some good volume breakouts helping things along. Without the volume, however, the last hour was a challenge.
With just three more sessions ahead of the quarter end and lingering worries about global issues, the sellers came in late and turned over the market. Gains evaporated on every index but the small and mid-caps. NASDAQ managed to give back 17 points in the last hour, converting a 10 point gain into a 7 point loss. Similar action plagued the other indexes.
The point loss in the last hour appeared as sharp as the point gains the prior session, but volume backed off significantly. Just as there was not a lot of upside enthusiasm, there was no downside energy either. It was just a matter of a weak session following a tremendous surge the prior day, and with low volume it was relatively easy to push stocks around. As we saw, there were still some good volume breakouts from solid patterns that held up even in the late selling. Thus the action, occurring on light trade, was not that bad. The real test comes next week when we see if NASDAQ can continue the move with another run at a follow through session.
THE ECONOMY
All eyes focusing on the Friday jobs report.
Voters surveyed place the economy as their number one issue. Despite growth rates not seen in 20 years (the last time the US kicked off a major investment-led growth boom) the average person feels the economy is in trouble. High gas prices (though not as high as 1982, the start of the 20 year boom, when prices were $3/gallon in equivalent dollars), political speak obsessing on an almost inconsequential number of jobs moving overseas, and even more obsessing about deficits are really nominal issues clouding what is a very good economic picture. They are, however, having a real impact on how the average citizen, still at nearly 100 year high levels of employment, view the future regarding their jobs. A high percentage of citizens are holding good jobs, but they are worried if they will last even as the economic data continue to improve and thus point toward even stronger job stability. An incongruity indeed.
We talk about jobs being the most lagging indicator. Truly it is the US citizen that is the most lagging indicator, and in some sense, a leading indicator when things are starting to peak. Just as the majority of investors finally feel it is safe enough to get in to the stock market when it is in its final leg higher, the average citizen does not feel really good about the future until he or she has been in a stable job for a long time, feels underappreciated and under paid, and entertains the thought of leaving for a new job. History shows that level of confidence is also indicative of the latter stages of an economic run.
Thus, given all of the very real, solid, and sustained indications of economic recovery juxtaposed with the general unease about future jobs, we view the nervousness as a sign the recovery is still young and has plenty of room to grow. Indeed, there are very positive signs that the jobs market is still improving despite the low non-farms payroll numbers. We have discussed how government reporting and measurement methodology does not account for economic reality when there are major turns in the economy. Thus, similar to the individual citizen, the non-farm payroll number is an even more lagging indicator than normal because it does not pick up all of the small business jobs in recently created businesses until after tax filing when the numbers are finally crunched. The rise in LLC filings alone indicates many more small businesses have arisen even as the big companies continue to shed jobs.
Even with the lagging non-farms numbers, however, there are still signs that even that indicator is getting ready to make the turn. We have posited that the turn would occur in March to May, but leaning to April as the first significant month of job creation (> 150K). After getting burned this year, most economists have toned back their estimates; thus, when the number comes we can be sure it will be a surprise simply because they cried 'wolf' too many times and now have stopped believing themselves. There are still a handful of economists predicting a 200K breakout in March. While we feel that is too early, we feel they are correct in that there will be a breakout that will catch the financial markets in their usual status quo.
What are the signs there is improvement? Manpower's 16K employer survey shows 28% expecting to hire workers April to June, the highest level since Q1 2001. These same employers said recruiting and hiring would increase in all business sectors. The National Association of Manufacturers says its survey of small to large manufacturers last week found that 55% are going to increase hiring. The UCLA Anderson forecast, measuring manufacturing hiring, revised its December report last week, stating that the manufacturing sector would, after 43 months of losing jobs, add 45K jobs per month in 2004. The last round of regional manufacturing surveys found the employment sub-indexes in positive territory and the workweek rising. We have already seen help wanted ads jump 20% in February. There is definite interest in hiring brewing, but is it percolating yet?
The Fed will need three months of 200K jobs growth to raise rates. The Fed is getting us all ready for that with its language changed and some comments by Greenspan's henchmen that 'rates won't stay low forever.' While the Fed's track record is not stellar by any stretch, it sees enough in the data to convince it that substantial jobs growth is just around the corner. We expect that to show up in April or May, and the question is, what happens to the average citizens' thoughts regarding the economy, jobs in particular, when the final piece of the economic puzzle is put into place?
Final Michigan Sentiment beats expectations.
At 95.8, March final beat February (94.4) and the preliminary 94.1, and the expectations (93.9). Once again the final proves stronger than the initial, just as it has done the past three months. Okay. Good to see sentiment show some improvement. Overall, however, these minor month to month differences don't mean much. The key is where sentiment is in the bigger picture.
Every time you hear about some terror threat, a problem in Iraq, a 'slowing' economy, deficits, jobs, etc. you hear in the same breath about how that will impact consumer sentiment. That is failing to see the forest for the trees. These day to day, back and forth, positive to negative and back, news stories are normal. What is key is the overall levels. When viewed in a historical light, sentiment levels are far, far above any level that would indicate the consumer is about to have a major identity crisis. Sure there could be some worry about the job in the future, but is that really based in any fact or just what they hear on the television with the overblown claims about outsourcing. We will go into a detailed discussion of outsourcing in the near future; for now suffice it to say that the new studies of this phenomena are coming in and they are indicating it is no greater than it has been over the last 30 years and even longer.
February personal income and spending continue to rise.
Income continued its string of gains, notching its highest increase since November when it jumped 0.6%. Consumers continue to earn a bit more each month as the incomes increased 0.4%, slightly higher than the 0.3% anticipated. Spending came in less than expected (0.2% increase versus 0.5%), slowing in pace from 0.5% in January and 0.7% in December.
The spending increase may not be as strong as anticipated, but the consumer continues to spend as noted in the discussion of sentiment. Moreover, there are tens of billions of dollars in tax refunds yet to hit wallets. When they do, given the sentiment levels, the spending will continue. Such a breather in the pace of spending is not abnormal.
Indeed, it follows a somewhat defined pattern over the past two years. Consumers continued to spend throughout the recession, but they would shift spending from durables such as cars in one month to non-durables in another month. February continued the turn away from autos and focused on nondurables and services. The trend in spending continues, and if jobs start to rally, the spending will pick up even more with the added bonus of tax refunds and additional savings (as incomes have outpaced spending the past few months).
THE MARKET
It was certainly no accumulation session in the making with volume running light all session. Thus when stocks reversed and sold on continued light trade to post modest losses, there was no reversion to distribution. After a big price jump on some solid (though still disappointing) volume Thursday, that is not bad action from a price/volume standpoint. NASDAQ continues to show improving action, and Friday's lower volume pullback continued that modest change.
The charts are not as comforting as NASDAQ stalled after a move over the 18 day MVA and reversed to close below that level again. SP500 traded over the 10 day MVA but reversed to close below that level. DJ30, SP600, SP400 as well. They all show what is called a 'tombstone' doji right at resistance. Dojis imply a change in direction, and when they occur at resistance in a selling market (such as the 10 or 18 day MVA), they can signal a bounce is over. Dojis usually mean more after a longer run, but with the market still trending lower in this correction, the signal cannot be ignored.
It may mean a resumption of the selling to new lows or it may mean a shorter pullback where it makes a higher low and sets up a further rally. We are anticipating the bounce to continue and not stall out. We are looking for NASDAQ to move up to 2000 or a bit beyond before running out of gas. SOX is a bit instructive. It gave back some move Friday after two good moves Wednesday and Thursday. It has broken past the short term MVA and after a test of maybe 475 it will be set to continue. We think NASDAQ will do the same.
The bigger picture we are looking for is a continued move up to last another week or more and then come back for the test of the prior low to set the bottom and then start the climb for the breakout. NASDAQ could still provide a follow through next week Tuesday through Friday (a 1.5% or more gain on rising, above average volume), and that would be positive as new market rallies are always preceded by such action. Stocks and the index, however, are still not ready to rally right away as they are still just trying to pull out of the correction downtrend. They would still need to work on their patterns a few weeks before breaking higher, but the follow through would show that accumulation had started, a very important part of putting a bottom on the correction and building for the breakout.
Market Sentiment
Flipping through the Saturday morning talk shows looking for a good classic movie, I tripped over a couple of those stock market 'group sessions' that resemble the group therapy sessions that were all the rage in the 1970's. There are several 'regulars' with one or two occasional new faces included, supposedly to inject new blood. What caught my eye was the heading '1987 market crash?' That begged a listen, at least as long as I could stand it.
First comment: it is amazing the conjecture and hypothesis that is tossed around on these shows as if it were fact. Myth 1: America, both the consumer (private debt) and the government, is in too much debt to continue to consume. This 'fact' is thrown around more than the dice at a Vegas craps table. Fact: total U.S. debt is growing at an 8.3% clip, below the 35 year average of 8.6% and well below the levels in the 1970's through 1988. Myth 2: Gas prices are too high and will pinch of consumption in other areas. True, if prices get too high discretionary capital has to be diverted to gas and energy costs. That really hurts the airlines. Already energy surcharges, a.k.a., price hikes, are being experimented with. That causes some to say 'Aha, energy inflation.' Well, the airline that is trying it already says if others don't match it, it will drop the surcharge. It is an attempt to raise the ticket price; it will either work or it won't in a very competitive industry. To the average driver, the bottom line is being raided for all of $5 or so. That is not going to break the piggy bank, cause smokers to go cold turkey, or make the monks break their oath of silence.
Those 'facts' out of the way, the 1987 crash talk was fascinating. The majority of the guests (4 of 6) are definitely expecting some sort of 1987-like crash, citing those above 'facts' as well as their inability to explain the rise in commodity and gold prices beyond a crash ahead. They say the only explanation is something nefarious around the corner. Gold, however, is trading at a lower price than it was in 1987. It is recovering from a long, long decline as commodities reinflate after they were in a long, long decline. Back in the boom we were asking why commodity prices were so low if the economy was so strong. Why was corn dirt cheap when there was drought in the corn belt? The economy was weakening, and we argued the Fed's rate hikes would crash it. Now those commodities are finally recovering from a long, long period of massive underperformance. That is not necessarily a sign of trouble, but is a sign of an economy that is growing the proper way, i.e., from top to bottom as opposed to an industry here and there. It was not too long ago that deflation was the paranoia of the economic world. After a relatively short recovery period to this point, however, they are now scared to death of the opposite effect.
That brings us, finally, to the point. The gloom is building as stocks continue to work through this very normal correction after a year of rallying. This happened last spring as well after the rally off the October lows. Stocks moved lower and laterally, and the rally was pronounced dead and that the bear market was ready to resume. Right now there are complaints as to the economy slowing, consumers worried over jobs, deficits, social security, Medicare, terror attacks, Seinfeld reruns being shown too much, etc. ANYTHING that you can gripe about is being considered a major problem for the market.
In short, sentiment is doing just what we wanted to do, i.e., getting very downbeat. The 'experts' on the weekend shows, the 'regulars' who remind us of Paul Lind, Jo Ann Whirley, and the rest of the gang on Hollywood Squares, are turning mostly glum in unison. Their problem is they all hang out together and listen to each other and are as insulated from the real world as much as Hollywood celebrities. Again, that is fine. We love to hear predictions of a 1987-like crash being discussed with the solemnity of a cardinal's ordainment. Why? Because even as this talk becomes more predominant NASDAQ is starting to shift its price/volume action, stocks with strong earnings and sales growth are working on good bases, and the economic data, after a pause, is going to return. Yes, it seems the negative sentiment is right on schedule.
VIX: 17.33; -0.55
VXN: 23.04; -0.66
VXO: 17.21; -0.55
Put/Call Ratio (CBOE): 0.77; +0.07. Remains at the high end of the range after showing 4 closed over 1.0 over the past two weeks. That set the stage for the bounce, now we see if it can continue the move.
NASDAQ
Rallied up to the last hour then gave up the gain and logged a loss as bids dried up ahead of the weekend. That let stocks keep on sliding to the close.
Stats: -7.15 points (-0.36%) to close at 1960.02
Volume: 1.581B (-19.86%). Volume dried up both on the upside and the downside action. In short, no real buying, and in the last hour the buyers stepped back. There was no selling either. Without buyers setting even the modest bid they held all session, stocks rolled over and found no support.
Up Volume: 762M (-1.071B)
Down Volume: 798M (+689M). Very evenly matched, showing that neither buyers nor sellers were in control.
A/D and Hi/Lo: Advancers led 1.05 to 1. Advancers managed to hold even as the index rolled over in the last hour.
Previous Session: Advancers led 2.85 to 1
New Highs: 89 (+24)
New Lows: 15 (-1)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Never showed a lot of strength, just coasting along after the strong Thursday bounce. Thursday was on rising volume; not blowout, but rising, and that was good for an accumulation session. Friday it rolled over after clearing the 18 day MVA (1965), but volume was extremely light, the lowest since the Christmas holidays. The candlestick chart shows the doji as noted, and that may lead to a bit of weakness Monday, but we expect it to hold near 1950 and resume the move up toward the exponential 50 day MVA (1999) or just beyond.
S&P 500/NYSE
SP500 tapped at the 18 day MVA, rolled over, and closed back just below the 10 day MVA. It still has not put together improving price/volume action.
Stats: -1.13 points (-0.10%) to close at 1108.06
NYSE Volume: 1.319B (-10.98%). Very low volume as the large caps tried the 18 day but failed. The small and mid-caps posted a small gain, but no accumulation on this low volume.
Up Volume: 732M (-521M)
Down Volume: 576M (+361M)
A/D and Hi/Lo: Advancers led 1.2 to 1. The smaller caps helped this slight tip toward advancers.
Previous Session: Advancers led 2.59 to 1
New Highs: 127 (+25)
New Lows: 25 (+16)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Started slow, rallied to tap at the 18 day MVA (1116) but then failed in the last hour to just slightly undercut the 10 day MVA (1108.83) on the close. A doji on the candlestick chart and below near resistance, but on extremely low trade. There was no distribution, no massive reversal, just bids pulled in that last hour. It is still not showing any improved price/volume action yet that the NASDAQ is starting to show. A test of 1100 to start the week is a good point to hold and rebound from. We don't think the bounce is over, but we have to be realistic with the large caps as they have yet to show any price/volume transition in this selloff.
DJ30
Tapped the 18 day MVA (10,267) on the high and then faded for a modest loss. The intraday gain was modest as well (52 points) as DJ30 never really caught fire. As with NASDAQ, it spent last week tapping at some potential support at 10,000, then started a strong price bounce. It is trying to improve, and we feel this is going to be a modest pause before it attempts a further bounce toward the exponential 50 day MVA (10,359).
Stats: -5.85 points (-0.06%) to close at 10212.97
Volume: 199 million versus 216 million Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
End part 1 of 3
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world stock market
us stock market
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