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trade stock, stock prices
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4/14/04 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: AZO
Buy alerts issued: STG
Trailing stops issued: VOXX
Stop alerts issued: ODP
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:
- Indexes hold the line at key support though it was not a blast off from the test.
- Consumer prices rising or at least catching up with the other areas that are already higher.
- Leading stocks holding up as indexes try to set up a bounce from key support.
Follow through selling leads to some buying at support.
The Consumer Price Index was hotter than anticipated and that continued the interest rate based stock selling at the open. The indexes quickly dropped to near support at the 50 day MVA as anticipated Tuesday night. NASDAQ held the simple 50 day, SP500 undercut its exponential 50 day, but both then rallied off that level. Buyers love to come in on tests of those levels. Stocks turned from negative to positive.
We were not ready to buy at that point, however, wanting to see how the bounce held. Over the course of the session the indexes formed top or umbrella pattern, and they ended up giving back all of the gains and making a second test of the support. Once again that brought in the buyers and stocks bounced nicely though it was not massive surge. NASDAQ and SP500 basically did what they needed to do, but it was not a clean, clear cut rebound.
Volume was mixed. NASDAQ trade faded but was still solid. NYSE volume jumped above average. Technically the SP500 distributed, but when overlaid with the price action the move was positive. SP500 showed a hammer doji with a long tail, holding above the 50 day MVA on the close on strong volume. That action shows that buyers stepped in when the index undercut its support and bought stocks, driving the index back up above support. NASDAQ held over its 50 day MVA on the low and it managed a bounce as well. Volume backed off but was still strong.
This action was positive, particularly after the Tuesday distribution. It does not rescue the market from that sharp downturn, but it shows that buyers are still ready to move in and buy stocks when they see opportunity such as a test of support that starts to hold.
THE ECONOMY
CPI posts fastest rise in 2 years.
Consumer prices rose 0.5% in March versus the 0.3% expected and 0.3% in February. The core rate, less food and energy, rose 0.4% (0.2% expected, 0.2% in February). Pretty salty numbers and it continued the fear of inflation which is really a fear of prosperity. We saw in the 1980's and in the mid to late 1990's that a strong economy that is growing by virtue of a strong supply side is not prone to produce inflation. Why? Because if businesses and entrepreneurs are given the ability to meet the demand points that are in the economy, i.e., free to move money without government regulations and rules that restrict investment, then demand will be met efficiently. There won't be bottlenecks created by excess demand because producers can easily move resources to meet demand. Reagan's tax incentives, Clinton's capital gains tax cuts, and both President's promotion of free markets created an environment where businesses could innovate and meet demand. Indeed, they created new areas of industry that consumers did not necessarily know they needed as we saw in the technology boom.
At this level there is no surge in inflation. What we are seeing is areas such as healthcare, insurance, and education that are really running consistently higher. This is hardly surprising. Many blame the companies involved, but each of these areas is so highly regulated that all semblance of a free market has been removed. That distorts price movement, and when regulation is relaxed prices tend to jump. Think of it this way. You have a dog and you feed it a small meal twice a day. He woofs it down and then spends the rest of the day trying to find more food to eat. What a pig you think. You then hear that dogs tend to do that because they don't know if the dish is going to be filled again. You start keeping food in the dish all the time. At first the dog pigs out and eats it all. After a while it figures out the food is there and it does not have to scarf it all down at once. Remove unreasonable restrictions on businesses and consumers, basically allowing the market to work, and you avoid those 'imbalances' that Greenspan so often referred to as he jacked up interest rates and strangled our prosperity.
Prices are rising but it is after more than a decade where commodities lagged horribly. As we have written before, gas prices are high, but in real dollars they are lower than they were in 1981. In 1920 prices were $2.73 in today's dollars. That does not make today's prices comfortable, but they are not at all time highs. Definitely interest rates can rise from here, but as long as we work to allow small businesses to conduct business without having to log miles of paperwork or making it economically unrealistic to pursue new business opportunities, then we can grow without detrimental inflation.
THE MARKET
Tuesday saw some leading stocks sell on rising volume, but Wednesday many leaders easily held support and even rebounded off those levels (e.g., EBAY, YHOO). Tuesday was unquestionably a poor session, but as we indicated that night, it did not mean the pullback was over. Wednesday the action was better as the indexes held key support along with leading stocks, showing possible reversals at that point. Indeed many stocks started to show reversals (e.g., MTSN), and we know that strong stocks tend to lead the market.
Still, the Wednesday action does not mean that the support has been tested, has held, and that the path is covered with rose petals on the way back up. The indexes took two shots at support Wednesday because the first bounce forgot what it was supposed to be doing, and had to be slapped by support again to start back up. Stocks did bounce again, but there was no unequivocal ringing of the bell. We still have to see a volume rebound as stocks continue higher. It was promising to see stocks take another blow of interest rate hike worries with the CPI, sell down to support, but then bounce off that support.
Market Sentiment
Still plenty of gloom about the future of the market and the economy, and as noted before, that is a good contrary indicator. It does not, however, replace the primary indicator of price and volume.
VIX: 15.62; -1.64
VXN: 21.59; -0.64
VXO: 16.66; -0.84
Put/Call Ratio (CBOE): 0.82; -0.10
NASDAQ
Tapped the exponential 50 day MVA on the low (twice) and managed to bounce off of that level. Not nearly out of the woods, but holding where it had to.
Stats: -5.23 points (-0.26%) to close at 2024.85
Volume: 1.855B (-5.61%). Volume backed off so no distribution, but it was still solid, coming in just below average.
Up Volume: 766M (+222M)
Down Volume: 1.045B (-362M)
A/D and Hi/Lo: Decliners led 1.56 to 1. Not nearly as out of hand as NYSE and much better than the Tuesday breadth.
Previous Session: Decliners led 3.64 to 1
New Highs: 92 (-49)
New Lows: 32 (+8)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
We talked about a 50 day MVA test that filled the early April gap more than a week back, but until Tuesday it looked as if it was going to avoid that as volume dried up and it held a tight lateral range. That changed in a session, and now NASDAQ has filled that gap and made the test. Volume was not what we wanted Tuesday, but improved Wednesday. One distribution session does not break a rally, but it does not do it any favors. NASDAQ held where it had to make a stand Wednesday. The first bounce did not hold so it had to bring the buyers in again. That last bounce in itself is pretty amazing after the first bounce spent the entire session selling back. Given that many strong stocks held their ground we take this still as a test of the rally from the March lows. Of course, it still has to deliver the break higher.
S&P 500/NYSE
Undercut the exponential 50 day MVA but managed to rebound twice to close over that level and show a nice doji as it did.
Stats: -1.27 points (-0.11%) to close at 1128.17
NYSE Volume: 1.541B (+8.59%). Volume jumped to above average for the first time since the start of the month when SP500 was surging toward 1150. In a macro view that is positive when combined with the doji with tail that held over near support.
Up Volume: 470M (+317M)
Down Volume: 1.039B (-223M)
A/D and Hi/Lo: Decliners led 3.51 to 1. Hard to believe that the Wednesday action was only half as bad as Tuesday. The small caps sold again but managed to check up at the 50 day MVA. This will be a crucial point for this important group to hold as well.
Previous Session: Decliners led 7.05 to 1
New Highs: 36 (-78)
New Lows: 224 (+111). Big surge in new lows as large caps undercut the 50 day MVA and small caps tested theirs.
The Chart: http://www.investmenthouse.com/cd/^spx.html
Undercut the exponential 50 day MVA (1127) and 1125 price support, but reversed at 1122 to retake the 50 day on the close. On the candlestick chart it was a doji with tail, and with the surging volume that is an indication that a reversal attempt may be in the works. The action did not evoke many warm comments in that regard, and that in itself is positive. Typically when the emotions about the market cloud clear analysis of what happened that day and the preceding days, something different is afoot. Could be that many have overlooked the high volume doji at support on SP500. It still has to deliver the goods just as NASDAQ, however.
DJ30
Similar action on DJ30 as SP500 with the blue chips undercutting the exponential 50 day MVA (10,389) but rebounding on stronger, above average volume to show a doji on the candlestick chart. Again, those are the attributes of a potential reversal or end of this pullback.
Stats: -3.33 points (-0.03%) to close at 10377.95
Volume: 230 million versus 202 million Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
The seeds of the end of this test are sown, now we see if it can deliver. The indexes remain at important levels and once more they will be tested. There was some help after hours as AMD reported excellent results, doubling the unit volume in processor sales. Apple Computer reported excellent results and strong guidance. TXN was solid, showing that wireless remains the growth area.
Maybe investors will now look at earnings as opposed to fearing rate hikes. Maybe money further rotates out of interest sensitive stocks, but with strong tech earnings there is a home for that money. There are more economic reports out before the open including jobless claims and two regional manufacturing surveys. It is a full week for earnings and economic data as noted over the weekend, and Thursday is just a warm-up for the finale with industrial production, Michigan sentiment, and housing.
Again the view will be on how the indexes respond to the 50 day MVA. They obviously need to start the volume move higher after what could be a very nice shakeout. Leading stocks will be key, and many are holding well, still in their uptrends and even ready to rebound from pullbacks. The market has been led to the water. It almost stumbled and fell in, but it is still ready. Now we see if it can drink.
Support and Resistance
NASDAQ: Closed at 2024.85
Resistance: Breakout from the pattern is 2080. 2089 is the February closing high. 2112 is the early January high. 2154 is the January high.
Support: The simple 50 day MVA (2016) along with the 18 day MVA (2020). The exponential 50 day MVA (2013) is the key, and it held Wednesday on the low. Then a jumble of support merges near 2000. 2000, the top of the late 2003 base. Some prices from the recent March consolidation attempt (1943). Mixed tops and bottoms at 1900. The 200 day MVA (1916).
S&P 500: Closed at 1128.17
Resistance: The simple 50 day MVA (1134) and the 10 day MVA (1134) have merged. 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 (1127), just over 1125, holding on the close Wednesday. 1106 is a May 2002 top and represents some early 2001 lows. 1096 to 1100. 1075 to 1070 from the December consolidation.
Dow: Closed at 10,377.85
Resistance: The simple 50 day MVA (10,452). Price consolidation at 10,600 level. September/November up trendline (10,625). 10,747 is the February high.
Support: The exponential 50 day MVA (10,389) is not totally broken. 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.
4-13-04
Business inventories, February (8:30): 0.7% actual, 0.5% expected, 0.2% January (revised from 0.1%).
Retail sales, March (8:30): 1.8% actual, 0.7% expected, 1.0% February (revised from 0.7%).
Retail sales ex-auto: 1.7% actual, 0.6% expected, 0.6% February (revised from 0.0%).
4-14-04
Trade balance, February (8:30): -$42.5B expected, -$43.1B January
CPI, March (8:30): 0.5% actual, 0.3% expected, 0.3% February.
Core CPI: 0.4% actual, 0.2% expected, 0.2% February.
4-15-04
Initial jobless claims (8:30): 335K expected, 328K prior.
NY Empire State PMI, April (8:30): 29.0 expected, 25.3 March.
Philly Fed PMI, April (12:00): 26.0 expected, 24.2 March.
4-16-04
Housing starts, March (8:30): 1.9M expected, 1.855M February.
Permits, March (8:30): 1.910M expected, 1.909M February.
Industrial production, March (9:15): 0.3% expected, 0.7% February.
Capacity Utilization, March (9:15): 76.8% expected, 76.6% February
Michigan preliminary sentiment, April (9:45): 97.0 expected, 95.8 March.
End part 1 of 3
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