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money investment, investment help
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3/31/04 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: MAMA
Buy alerts issued: ACXM; R; DJX
Trailing stops issued: None issued
Stop alerts issued: PCR
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:
- Stocks languish at near term resistance as buyers remain tepid.
- Factory orders rise but much less than expected as manufacturing activity appears to ease.
- Some churning at resistance adds to the near term weight on the market.
Stocks recover from weaker data but cannot hold on.
Stocks were sluggish pre-market but after a lower open were on the mend. Then the factory orders came in 1.2% below expectations and Chicago PMI, while still showing manufacturing expansion continued, it did so much less than the decrease already anticipated. The market jerked lower sharply. It found bottom and then worked back to mid-range. Then it spurted higher after lunch to session highs with NASDAQ clearing 2000 and SP500 well over 1125.
In a reverse from Tuesday, however, stocks weakened into the close, giving back positive territory and closing down on rising volume. Two negatives: poor price action heading into the close and rising volume as stocks sold some after a low volume rise to resistance. That is not a great way to prepare for the big jobs number where expectations are running higher. True job indications are still turning positive, but there is no clear surge in corroborating data to support a blowout month as some expectations are building in. It is potentially setting the market up for the next drop that tests the lows and will try and form the bottom of this correction.
THE ECONOMY
Chicago manufacturing softens as prices leap.
March factory activity slowed to 57.6, still strong but well below the 61.0 expected and 63.6 in February. A solid number, but when you dissect the subparts, it loses even more luster than the lower overall reading did. Prices paid shot to 75.7 from 66.9. New orders fell to 60.4 from 67.5. Production tanked to 59.1 from 73. Employment torpedoed 50, dropping from 54.8 to 49.2. Slower expansion, soaring prices, falling production, and falling orders. Typically you would expect some components to soften and others remain strong in a pause. This across the board weakening has some disturbing tones, but it is just one month, and it never pays to get too worked up over one month. It is, however, something to note and requires us to keep a sharp watch on other reports. With the national ISM out Thursday, that won't take long.
Factory orders rise but barely positive.
The only spin you could put on this one is that they rose 0.3% versus a decline of 0.9% in January. January was revised lower from a previously reported -0.5%. So the February number was a gain, just much lower than the 1.5% anticipated. Take out transportation, a component that was dominated by defense airplane orders, however, and the number was -1.2%. The durables orders and factory orders show a weakening in capital expenditures, the lifeblood of this recovery. After a surge in the last half of 2003 where businesses took advantage of the big expensing provisions before year end, the start of 2004 looks more like companies are still investing, but are still holding back. That means gains will be more typically seasonal, i.e., the big surge will again be in the second half of 2004 before the tax provisions run out at year end. Businesses often wait until the last minute to make tax-based buying decisions, loading up their purchases before their tax year ends. We had predicted a strong second half capital investment surge again, but were hoping business was good enough for solid investment to continue. As it looks, capital investment is running about half of the 15% level in the second half of 2003.
Slower investment, slower manufacturing telling us something and putting new light on gold?
We are not being alarmist, but are just noting that these sloppy economic reports are something to watch. All investment cycles move in, well, cycles. They are strong, they soften, then they pick back up again. We feel they are in a softening period now. The soaring prices paid in Chicago coupled with the slower capital investment and falling production may be a signal of some actual inflationary pressures. Gold has been climbing but was softening. Now it is firming up again. It was in a long decline and this has been more just a recovery from the whipping it took for years. Watching prices jump, however, some of the gold price gain has an inflation hedge component to it.
The Fed has been a bit more hawkish on rates. We feel the Fed could raise rates by 100 basis points and not cause any drag while at the same time calming some inflation fears. Our concern is that the fed never knows when to stop whether cutting rates or raising rates. The market feels the same, and that is why when the Fed talks of being 'pre-emptive' it is always a concern such that it sends shivers into money managers. After all, the Fed 'pre-empted' inflation by pre-empting prosperity before; it has a track record of tossing the baby out as well, killing the goose that lays the golden droppings, or any other clich you want.
THE MARKET
The market showed mixed signals, though the overall action was negative. Volume rallied as the indexes churned and closed slightly lower at resistance. That is the most damning of the Wednesday action as it comes on top of a lower volume rally to this point. Yes NASDAQ has shown some improved price/volume action, and that is very good. As we have noted, however, it is not ready yet to breakout, needing another test, this time on better price/volume action, to set the bottom and complete the base. A day of distribution is often enough to quell a rally. This rally was rather anemic as it was. It is vulnerable to distribution.
There were some positives. Or should we say there was a positive. Breadth was positive even as the large cap indexes slipped negative. SOX, SP400, and SP500 managed to close positive, and that bolstered breadth. A down session with positive breadth is not that bad. Moreover, while higher, volume did not shoot up and the losses were not huge.
Now the other negatives. The higher volume and modest point drop was not a clear reversal, but there was some churning, and that erodes a move as well as distribution. Add to that the action in many breakouts or breakout attempts: good patterns with good accumulation from good stocks are trying the breakout, but they are running into trouble. Some soar without a worry. Others, and more and more of the others, are jumping up and then reversing. We saw stocks that were breaking higher Tuesday giving it all back Wednesday. Stocks that started out light gangbusters and rallied on volume most of the session turned and reversed late in the session to give back the breakout. This is just about the most telling evidence of a serious weakening in buyers and a sign of a fading rally.
The market may limp laterally into the jobs report. As we noted, predictions are again getting out of hand to the upside based on some definite positive ancillary evidence, but it simply does not appear to be enough to support a blowout. Yes, it could give the 120K or so expected, but not likely the 200+K. Would that be enough to rally the market? It might help temporarily, but it would not be enough to support a sustained breakout. Thus the market can hold up as it moves into the Friday report, but it is setting itself up for some potential trouble. Remember, a disappointing February report helped loose the dogs on the correction.
Market Sentiment
That optimism about the jobs report is part of the new optimism we cited Tuesday as part of the signal that, when combined with the rather weak and low volume rally to this point, looks more like a contrary indicator at this stage. Give investors a bounce from a big sell off and you ignite new hope even in light of a pretty weak bounce based on the numbers.
VIX: 16.74; +0.46
VXN: 23.76; +0.58
VXO: 16.73; +0.74
Put/Call Ratio (CBOE): 1.31; +0.7. Pretty salty jump as big institutions hedged their positions.
NASDAQ
Tried to rally further past the 50 day MVA, but slid lower, churning on some much stronger volume. Not the best upside indication at this point.
Stats: -6.41 points (-0.32%) to close at 1994.22
Volume: 1.892B (+17.66%). Volume jumped substantially, and even though losses were modest, a higher volume churn (running in place) has the same effect as distribution. Rising volume at resistance shows high turnover as the early money moves out and the late money moves in.
Up Volume: 684M (-217M)
Down Volume: 1.148B (+558M)
A/D and Hi/Lo: Advancers led 1.21 to 1. Breadth was still positive even on some selling, one of the few positives on the session.
Previous Session: Advancers led 1.5 to 1
New Highs: 152 (+23)
New Lows: 21 (+8). Stocks were going both ways, adding to new highs and new lows. The market is confused.
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Trudged past 2000 and the exponential 50 day MVA (1999), but could not hold the move. It finished in the top half of the range, usually a positive intraday signal. It gave back a gain late, however, and it is showing a hanging man doji at resistance after a mostly lower volume rally. Those are symptoms of weakness piling up on weakness. It may move into the jobs number holding the gains or drifting higher in hopes of a blowout number. If the number misses or is in line, then it works on that next test of the lows to set the bottom of the correction. Best case? The jobs number estimate is hit and the market fades back over the next two weeks on lower volume. That would set the stage for the accumulation that would build the right side of the base and lead the breakout. That will give us a lot of opportunity.
S&P 500/NYSE
Volume jumped to average as SP500 ran in place. It held over 2500, but still precarious here.
Stats: -0.79 points (-0.07%) to close at 1126.21
NYSE Volume: 1.478B (+13.1%). Volume jumped to average as the large caps rallied positive, but gave up the gain. Similar to NASDAQ, it was running in place near resistance, showing that churn. SP500's price/volume action has been worse than NASDAQ to this point.
Up Volume: 810M (-120M)
Down Volume: 624M (+260M)
A/D and Hi/Lo: Advancers led 1.61 to 1. Positive breadth by virtue of the mid-caps and small caps. Again, positive breadth on a down day is good action.
Previous Session: Advancers led 1.99 to 1
New Highs: 258 (+71). New highs still expanded as the smaller caps continued higher.
New Lows: 6 (0)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 sits right on top of the simple 50 day MVA (1122) and price support at 1125. Lots of index options bracketing this level as many traders and institutions feel this is a significant support/resistance level. Volume rose to average as it churned some at that point. As noted, its price/volume action on this bounce has been weaker than NASDAQ. Showing a hanging man doji itself below the simple 50 day MVA (1134). It has not rolled over, but it looks ready to do so.
DJ30
As with the other indexes, volume jumped up as it showed a doji that closed right on top of the exponential 50 day MVA (10,358). A weak rebound to this point and now some churn as volume rises. That doji and higher volume signals a potential top to the move just as the dojis on higher volume 6 and 7 sessions back after that selling were indications of a rebound ahead. As with SP500, it has not rolled over and could maybe respond favorably to a blowout jobs report. Even with that, we doubt the move could last long because the pattern is just not ready to support a strong and sustained break higher.
Stats: -24 points (-0.23%) to close at 10357.7
Volume: 189 million shares versus 197 million shares Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
The ISM takes focus before the jobs report Friday, and it has more importance given the weaker Chicago report and its unhealthy bag of sub-indexes. If it is a good number it helps the market hold up ahead of the jobs report. If it is weak, maybe it starts pushing the market lower some, but with optimism about the jobs report it may not be ready to completely roll over.
In addition the national manufacturing report, Thursday is the first day of a new quarter. Some of the market buoyancy may be lost as the funds have done their buying to spruce up the faces of their funds. Certainly the action over the past week with the weaker volume rally and higher volume churn Tuesday indicates downside to come. It may just not come Thursday. As we can see looking back at the index charts over the past few months, it can take a couple of sessions before a rebound or rollover when a short trend higher or lower runs out of gas. Hanging on for another session sets it up for a pullback on the jobs data. Again, even if the jobs data is solid and in line, a bounce on the news may turn over into selling within a short period as the market is not set up for a sustained rally from here.
There were good moves Wednesday once more, but there were also moves that started very well but then flipped. The action is turning choppy, and we are going to be a bit tighter with existing plays and very cautious on new plays, particularly upside. The market is showing it is ready to shift directions, but with an overall uptrend still in place it can take more time to roll back over. It also has the wildcard jobs report Friday that could alter the landscape. We don't believe the numbers will be such to change the near term weakening bounce, but if solid enough, would be another factor that helps the market hold the recent lows and complete its correction.
Support and Resistance
NASDAQ: Closed at 1994.22
Resistance: The exponential 50 day MVA (1999). 2000, the top of the late 2003 base. The simple 50 day MVA (2026).
Support: The 10 day MVA (1970). Some prices from the recent March consolidation attempt (1943). Mixed tops and bottoms at 1900. The 200 day MVA (1897).
S&P 500: Closed at 1126.21
Resistance: Trying to hold over price resistance at 1125, still a key level. The simple 50 day MVA (1134). 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 exponential 50 day MVA (1122). The 10 day MVA (1116). 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 10,357.70
Resistance: The exponential 50 day MVA (10,359). The simple 50 day MVA (10,469). September/November up trendline (10,545).
Support: The 18 day MVA (10,292) is trying to hold on the lows. Then the 10 day MVA (10,269). 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): 88.3 actual, 86.0 expected, 88.5 February (revised from 87.3).
3-31-04
Factory Orders, February (10:00): 0.3% actual, 1.5% expected, -0.9% January (revised from -0.5%).
Chicago PMI, March (10:00): 57.6 actual, 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.
End part 1 of 3
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