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us stock market, trade stock
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3/29/04 Technical Traders Report
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Technical Traders Report Subscribers:
Good Monday evening to you!
MARKET ALERTS
Targets hit alerts issued Monday: RECN; CHTT
Buy alerts issued: ODP; PCR; ROV; NVTL; MXT
Trailing stops issued: None issued
Stop alerts issued: DHR; GGG
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:
- Rebound move continues on rising though still below average volume.
- Jobs expectations are, unfortunately, creeping higher again.
- Some accumulation, a lot of quarter end buying, but already at the 50 day MVA.
- Subscriber Questions
Market rally continues on expectations but not much substance.
Upgrades of QCOM and GE helped set a positive tone, earnings expectations continue to improve among investors despite the sour talk regarding the economy, and the dollar continues to recover as a Monday London Times story confirmed our surmise that Japan was no longer intervening to hold the yen lower. That set a positive tone pre-market, and that carried through into the regular session.
Stocks starts strong and rallied to the exponential 50 day MVA. It moved laterally, holding its gains, but was a victim of its own success in the last hour. In an intraday alert we noted it would be best for an early to mid-afternoon pullback to set up a last hour resumption of the rally. It held onto its gains in something of a sign of strength, but volume was still very light. That led to a last hour collapse that was looking reminiscent of last Friday. Unlike Friday, however, stocks caught a late bid and recovered almost to the session highs. Thus it gave the same action, just in the span of an hour versus the entire afternoon.
The recovery was a more bullish spin on the action versus Friday when the market gave back its gains. There were some very good leadership breakouts once more as the early leaders are making some moves. Breadth was solid once again on an up session. Still, volume just edged higher and was still well below average. It was not a clear, strong follow through to Thursday's rally because of this light trade. Price/volume action is improving, but it just starting to turn. This light volume will ultimately stall this move and lead to another test, but that is what we want. If price/volume continues to improve (higher on up sessions, lower on down sessions) over this period the next few weeks, we can look for the test to be a success. That will allow the early breakouts we are seeing to test their moves as the other stocks complete their bases. Then it will be ready for the real move.
THE ECONOMY
A stronger dollar, rising hopes once more on jobs.
The dollar has been improving or at least solidifying against foreign currencies after a pretty quick drop the past two years. That is putting some confidence back in investors and it is showing up in the market. Sure everyone put on a stiff upper lip as it sold lower and lower, stating what a boon a falling dollar was for US exports. Deep down though, most feared a continued slip. Certainly some of the big multinationals were benefiting, but the average business in the US, which is a small business, does not participate in that market. They want to see a stable and solid dollar to support financial markets and investment in the US. Thus the stability in the dollar of late has helped give the market and smaller businesses a shot of confidence.
The dollar is helping but the key still remains jobs. Expectations for jobs growth were dashed after the February report and they remained dour. Lately, however, with renewed confidence regarding earnings and economic prospects, expectations have started to creep back up. Consensus is around 123K, but once more the whisper is hitting 225K. We would love to see it, but the underlying data simply does not appear to support that jump just yet. We are holding to our April date, but also realize that the economy started creating jobs before we predicted it would in December 2003. Of course the problem these creeping expectations face is reality, and the market is setting up with a low volume rally to resistance. That can lead to some disappointment selling.
THE MARKET
With the quarter end on Wednesday, institutions were busy shuffling positions and putting money to work so they can look pretty on paper as well as fulfill their investment requirements set out in their fund prospectus. The helped stocks rise across the board, and it helped leaders make new surges after taking a breather.
Volume was up as NASDAQ posted another accumulation session. NYSE volume was higher as well as SP500 along with the small and mid-caps posted accumulation sessions as well. It was not very strong volume, however, just topping Friday's volume on NYSE. NASDAQ was a bit better, adding another 200 million shares to Friday, but Friday was the lowest volume of the year.
While volume was nowhere near where you would want to say 'yes, there was a solid confirmation session', price/volume action continues to improve. NASDAQ looks the best as it has a couple of weeks head start on transitioning from selling on higher volume to lower volume selling and higher volume up sessions. That is the key transition that must occur in the base, correction, consolidation, whatever you want to call it.
Now NASDAQ and SP500 have already run to the 50 day MVA and have shown some expected hesitancy at moving through that level as this is the first bounce off of the lows in the correction. We pegged the exponential 50 day MVA as our rough target for NASDAQ, and it took all of three sessions (one was a losing session) to make it. We want to see it hang out here for a week or so, trying to move higher, succeeding a bit, but making another pullback for a test of the prior low. As long as price/volume action continues to improve with that move we will be very pleased.
A blowout jobs number could propel it higher near term but we still feel it will have to make that next test. If it misses again, after the creeping expectations, then the market could make its test sooner though that would still give it about a week at the 50 day. In short, either way we look at the market as improving but needing another test back to set the bottom and start the next breakout. In the interim we will look at those stocks that are already moving well and setting up breakouts as our plays as those are the leaders that are ready to move ahead of the market.
Market Sentiment
VIX: 16.5; -0.83
VXN: 23.16; +0.12
VXO: 15.96; -1.25
Put/Call Ratio (CBOE): 0.67; -0.10
NASDAQ
Strong surge to the exponential 50 day MVA stalled but managed to recover as volume was a bit better as the rebound continued.
Stats: +32.55 points (+1.66%) to close at 1992.57
Volume: 1.72B (+8.8%). A decent uptick in volume but still not commensurate with the price gain. Nonetheless, we see the transition in NASDAQ price/volume action from heavy volume selling, to neutral, to somewhat accumulative in the past two weeks. That is a necessary and key element of the basing process and a very important change in the action. NASDAQ must transition to accumulation or it is going nowhere. Thus it is doing what is necessary.
Up Volume: 1.465B (+703M)
Down Volume: 235M (-563M). May not be huge volume, but it is dominated by upside trade.
A/D and Hi/Lo: Advancers led 2.47 to 1. Excellent breadth.
Previous Session: Advancers led 1.05 to 1
New Highs: 131 (+42)
New Lows: 15 (0)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ has rebounded with some fury, a fury typically associated with strong recoveries and breakouts or with oversold bounces. Price/volume action has improved, but the price gains are out of proportion to the volume. In other words, there is buying ongoing as we see leaders moving on strong trade, but overall the participation is not across the board with respect to the institutions.
As a result, NASDAQ tapped the exponential 50 day MVA (1999) and recoiled some. It did not turn tail and run though it tried in the last hour. The improved price/volume action is helping it maintain its gains better as it continued its move after a Friday doji at the 18 day MVA (1968). That can help it hold up on into the Friday jobs report; maybe not make a lot of gains to then, but hold up. That is the action we have been looking for: a rally that holds up for a week or so, showing more mustard than just a short oversold bounce the runs up, flares out, and falls back. We expect this one to hold up a bit better.
S&P 500/NYSE
Ran up to the exponential 50 day MVA on a slight volume increase. Better, starting to show a transition, but nowhere near as far along as NASDAQ.
Stats: +14.41 points (+1.3%) to close at 1122.47
NYSE Volume: 1.362B (+3.27%). Volume improved as well, posting its first accumulation session since 3-17. It was not blowout, just edging higher as SP500 posted a solid price gain. As with NASDAQ, the volume is not commensurate with the price gain. Still, the index has to make the transition, and any solid price/volume action we get along the way welcome.
Up Volume: 1.183B (+451M)
Down Volume: 163M (-413M)
A/D and Hi/Lo: Advancers led 2.73 to 1. Very solid upside breadth again, a hallmark of the up sessions.
Previous Session: Advancers led 1.2 to 1
New Highs: 180 (+53)
New Lows: 11 (-14)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Shot to the exponential 50 day MVA (1122), managing an ever so slight close over that level. The pattern is still very ragged as SP500 bounces up off of the second leg down in the selling. It is right at the mid-March high (1123.75); if it breaks that it could gain more momentum toward the simple 50 day MVA (1134), but we don't expect much more than that. As with NASDAQ, we ultimately expect it to test lower again and toward 1075. Good to see the price/volume action try to transition, and we want to see it continue as it works through the correction.
DJ30
Solid, unspectacular rise to tap toward the 50 day MVA (10,358) on the high (10,350), but volume was again below average on the move. It did not wait to make the further move to this level, and now it has to try and muster the strength to break it. Looking at the patterns in the index, it does not look promising. DJ30 needs another test back. As with the other indexes, we just want this one to last a bit longer before it does.
Stats: +116.66 points (+1.14%) to close at 10329.63
Volume: 197 million shares versus 199 Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
A big week of economic data starts Tuesday with the Conference Board's March confidence reading. Michigan sentiment was higher than expected, and that has set the stage for increased confidence regarding the confidence numbers. That is just the warm up for the ISM, factory orders, and of course, the granddaddy of them all nowadays, the jobs report.
The market will start focusing on that more as the week progresses. Moreover, the quarter end shuffling will come to an end most likely at some point Tuesday, and that will take some bid out of the market. We expect stocks to try and hold their gains given the improved price/volume action even as it moves in on Friday's jobs report. Does not mean it will not lose some ground, but just not roll over. At the jobs report there is a near term inflection point. If they substantially beat expectations or are even in line (123K expected is not cheese spread) there could be a further rally to next resistance. If jobs fail miserably again then you have the ingredients for the next test of support though it most likely won't be a massive rollover.
Support and Resistance
NASDAQ: Closed at 1992.57
Resistance: 1990 to 2000, the top of the late 2003 base. The exponential 50 day MVA (1999). The simple 50 day MVA (2032).
Support: Looking to see if the 10 day MVA (1948) and some prices from the recent March consolidation attempt (1943). Mixed tops and bottoms at 1900. The 200 day MVA (1890).
S&P 500: Closed at 1122.47
Resistance: The exponential 50 day MVA (1122) and price resistance at 1125. The simple 50 day MVA (1135). 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 10 day MVA (1111). 1106 is a May 2002 top and represents some early 2001 lows. 1096 to 1100 may also try to hold. 1075 to 1070 from the December consolidation.
Dow: Closed at 10,329.63
Resistance: The exponential 50 day MVA (10,358). The simple 50 day MVA (10,477). September/November up trendline (10,525).
Support: The 10 day MVA (10,220). 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.
3-30-04
Consumer Confidence, March (10:00): 86.0 expected, 87.3 February.
3-31-04
Factory Orders, February (10:00): 1.5% expected, -0.5% January.
Chicago PMI, March (10:00): 61.0 expected, 63.6 February.
4-01-04
Initial jobless claims (8:30): 340K expected, 339K prior.
Construction spending, February (10:00): 0.0% expected, -0.3% January.
ISM (manufacturing sentiment), March (10:00): 59.5 expected, 61.4 February.
4-02-04
Non-farm payrolls, March (8:30): 123K expected, 21K February.
Unemployment rate, March (8:30): 5.6% expected, 5.6% February.
Average hourly earnings, March (8:30): 0.2% expected, 0.2% February.
Average workweek, March (8:30): 33.9 expected, 33.8 February.
SUBSCRIBER QUESTIONS
Q: I wanted to ask a subscriber question but could not find a place on the web site to do it, so I thought I'd try here. You guys provide a great service. I can't begin to tell you how much you've helped me. I do have a question though. A number of your recommendations lately involve stocks with very low average volumes. I would assume you guys buy and sell a lot more shares than an average investor like me. How do you decide on how many shares to buy with a stock [with average volume 100K or less?]. Do you have to buy in pieces so that you don't drive the price way up with a large order? Do you have to do the same when you decide to sell? I've had trouble with just a few thousand shares in stocks like this. Any advice you can give would be appreciated. Thanks again for providing such a great service.
A: It is harder to trade stocks with below average volume and we like to keep those to a minimum because of the lower liquidity. The primary consideration on liquidity is the ability to get out of a position if things start to fall. If volume is less than 100,000 shares on a 50 day average, there could be a problem if some bad news hits and you hold the stock. There may be no buyers no matter what size block of stock you are looking to unload. To a certain extent it is true that a smaller position would be easier to sell than a larger position in any stock whether it was liquid or not. The exception is a very small lot. The problem with illiquid stocks is, as stated, there simply may be no buyers if bad news hits. As for any position whether options or stock, we don't want to be 10% or more of the market.
With that in mind, for moving into those stocks which tend to trade on below average volume we look for the same strong volume breakouts that we require for stocks that typically trade on above average daily volume. That breakout on strong volume as it moves through the buy point shows us there is demand, and it also gives us cover to put in our orders without skewing the market. Of course if we put in an order that is 50% of the volume, it will skew the stock price. We do not, however, put all of our eggs in any one of these plays so we don't try to own the market on that stock anyway. If the pattern, accumulation, price/volume action, etc., look good conditions are optimized for a breakout that can lead to the successful trade which helps minimize the difficulty of trading such stocks. Strong, above average volume shows us that more than the usual number of buyers want the stock. If the pattern is strong and accumulation is strong (we typically look for very strong accumulation in these), then when we see the breakout on very solid trade that gives us more confidence that the stock will give us the move we are looking for without running into trouble that would make it harder to get out on the sell side. In other words, we would be selling when we want to sell as opposed to when we have to.
That, of course, is not always the case, no matter how strong the pattern and breakout are. Thus, on the sell side it can be harder. We sometimes see the spread widen when a sell order is put in even at the big. We never load the boat on these plays, so when dropping 2K shares or so it is not running the market on the stock. We can typically get out in one or two sells in these instances unless the stock just turns over and tanks. Remember, however, that when a stock starts a plunge, it typically will bounce in recovery. It is much easier to get out at that point than during the 'panic' lower where it invariably seems you get out at the low. By being a bit patient, it also makes you more rational and not blindly rushing in. Stocks typically rebound the opposite direction after the initial surge, and that gives us a better price to get out as well as an easier time finding a buyer for all of our shares.
End part 1 of 3
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