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us stock market, trade stock
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4/15/04 Technical Traders Report Update
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Technical Traders Report Subscribers:
Full reports issue Monday, Wednesday and Saturday. Tuesday and Thursday we issue a market summary and a few solid plays for the next session.
MARKET ALERTS
Targets hit alerts issued Thursday: None issued
Buy alerts issued: None issued
Trailing stops issued: NVDA
Stop alerts issued: ANSR; FMDAY; GTI
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 continues its interest rate pricing.
- Continued excellent economic data continues to hamper stocks short term.
- More distribution as NASDAQ, SOX undercut 50 day MVA.
Earnings not enough to help stocks.
The late Wednesday bounce off the 50 day MVA was an illusion, at least that was the look of it immediately after the Thursday open. Jobless claims jumped 30K but continuing claims fell below 3 million and the regional manufacturing reports showed the economy was, surprise, much stronger than anticipated. Futures initially moved up with the data but then started to fade. Our pre-market alert said indexes were going to test the 50 day MVA again, and they did that. More than that, they broke the 50 day MVA (NASDAQ and SOX) on some rising trade. The large caps made another stand at that level, but the relative ease with which techs and chips broke support and failed at even trying to rebound was discomforting.
Now there was another late bounce, but the modest late bounces versus the early session downside selling is not an equitable trade. With the current mindset, the late bounces are not much more than a set up for the resumption of selling. What is that current mindset? Interest rates are going to rise (they are doing that on their own) and that reduces the value of stocks. That is leading investors to sell stocks, and not just interest sensitive stocks. Sure C reported great earnings and was sold, but so did TXN and AMD and they were dumped on high volume along with C.
Earnings season barely started when the selling began, prompted by strong economic data that indicated rate hikes sooner than later. This is one of those paradox times in the market when good news is viewed as bad news. Stocks anticipated the good news and rallied in 2003. They are currently in a consolidation of that move, and this recent action, while not a complete breakdown, is showing they are hard pressed to make a breakout without some more consolidation as it digests the meaning of even stronger economic data and the likelihood of higher interest rates. In short, investors are trying to determine if the future gains are still in the cards if rates start rising and if the Fed gets too aggressive. While they figure that out, they sell stocks because uncertainty in the market typically translates into selling.
THE ECONOMY
Jobless claims jump 30K.
Initial claims hit 360K versus the 335K expected and 330K prior. That type of volatility is not uncommon, and though the 4 week average moved up to 344,250, up 6750. The trend remains down despite the largest jump since December 2002. Significantly, the continuing claims fell below 3 million to 2.98 million, a drop of 22K and the lowest level since July 2001. The numbers threw some doubt on the monthly jobs report's ability to deliver strong jobs again in April, and that initially helped stock futures. The rest of the data then started to erode them into the open.
NY Empire and Philly Fed manufacturing surveys handily beat expectations.
The data, and it is a lot of data, continues to strengthen and demonstrate a much stronger economy than most believe we have. That includes both those that already know the economy is solid and those that continue to ignore reality and chant the sky is falling. Certainly not everyone that lost a job in the hardest, fastest economic drop in decades has an equivalent job right now. That does not mean the economy is not roaring back and is starting to manufacture new jobs as the expansion continues to gain strength. Denying the recovery exists because not everyone has an equivalent, pre-recession job is the same as saying NASDAQ did not rally 70% from March 2003 to January 2004 because NASDAQ has not returned to its pre-crash highs. It is intellectually dishonest, but then again, we are in an election year. Both sides will inflate the results or lack of results. Once more I find myself longing for November 8 to be here, but as we saw in 2000, that is no guarantee the politics are over.
Back to the numbers. New York's April reading was 36.05, easily topping March's 24.2 reading and the 26.0 expected. Philly surged as well, scoring 32.5 versus 24.2 in March and 26.0 expected. The March numbers dipped more than expected, but with the April data it is clear that March was the momentary pause that we suggested it was at the time. Prices were higher as well, hitting 57 in the New York survey. That continues to rattle those worried about inflation, but again, deflation was the fear just 6 months back (even less). There has to be some inflation to have an expanding economy. As long as we are smart about how we encourage growth, inflation is not that big of a factor.
THE MARKET
Earnings were strong again Wednesday evening, but with the specter of rising interest rates, investors are not sure right now if they are strong enough. They are still trying to factor in how many rate hikes. Until they do that with some certainty, it is even harder to put a value on stocks. Uncertainty, as noted, leads to selling as the mindset it to save what you have now, then reassess when more data comes in.
That led to distribution on NASDAQ as it undercut the exponential 50 day MVA and made no real effort to recover that level. Chip stocks were thumped on volume as well as SOX undercut its 50 day and SMH (semiconductor holders trust) plunged to its 200 day MVA. SP500 and DJ30 managed to rebound and hold their 50 day MVA, positing modest gains on rising trade. Not bad recoveries at all, but you can't leave out NASDAQ's action as the market tends to make no headway without it.
What did NASDAQ do? It sold off on rising volume for the second time in three sessions, distributing money (i.e., money was leaving) as tech stocks were sold in higher volume than they were bought. Another session of that type of selling suggests a 200 day MVA test. As it is NASDAQ managed to rebound from undercutting some support at 2000 and tapping the top of the late 2003 consolidation range (1990). It bounced off of that former high to close just over 2000. As you may recall, 2000 was one of the levels we said NASDAQ could test in its test of the bounce off the 200 day MVA was 2000. That is where it bottomed in late February, and if it can hold again here and resume its climb that would form the right shoulder of a reverse head and shoulders base, an accumulation pattern that often leads to upside breakouts. It has made that test and in doing so fully filled the early April gap. That does not automatically mean it is going to make the bounce and then breakout. As noted the index has started distributing again, and if that does not stop this test of 2000 won't hold up.
In sum, the market is still consolidating the strong run through January. It showed a bit more strength than we anticipated in early April as it clung to the gains on the bounce off of the March low. That strength has eroded in the face of uncertainty about rising interest rates impacting stock values even as the economy continues to strengthen. Indeed, it has become clear to all except those unwilling to admit it that the economy continues a true expansion. Ultimately an expanding economy overrides interest rate concerns because growth increases earnings to a greater extent than rising rates impinges that growth. The wild card is the Fed. Given the latest example of its rate hiking savvy, investors are rightly concerned that the Fed will go well beyond what needs to be done with respect to rates.
Even with rate hikes, however, a growing economy wins out. In 1994 the Fed hiked rates, Clinton fumed about it behind closed doors, and the market went sideways. Once that was over, the market took off. The market is now doing its sideways dance, and it has done so for three months. If it does not cease the distribution, that lateral move will take even longer. For now NASDAQ is at a good place to hold and rebound if the selling ceases.
Market Sentiment
VIX: 15.74; +0.12
VXN: 22.83; +1.24
VXO: 16.24; -0.42
Put/Call Ratio (CBOE): 0.84; +0.02. Not rising as much as you would like to see given NASDAQ's action.
NASDAQ
Undercut the 50 day MVA but was able to bounce up off the late 2003 consolidation tops and hold 2000. Something of a moral victory given the strong selling volume.
Stats: -22.68 points (-1.12%) to close at 2002.17
Volume: 1.985B (+7%). Volume was again above average as NASDAQ sold. It broke key support but also managed to hold the next level of significant support. Even with that modest bounce off of that lower level, however, it is hard to classify the volume as anything other than distributive.
Up Volume: 487M (-279M)
Down Volume: 1.481B (+436M)
A/D and Hi/Lo: Decliners led 1.62 to 1. Modest breadth once again as techs continued to sell. Much improved over the Monday thrashing.
Previous Session: Decliners led 1.56 to 1
New Highs: 64 (-28)
New Lows: 31 (-1)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Undercut the 50 day MVA (2013), broke below 2000, but found some support at the December 2003 high (1990) that roughly marks the top of the October to December consolidation that gave rise to the final run into January before the current longer term correction. As noted, 2000 was one level we saw as potential support after NASDAQ gapped higher early this month. It then gave everyone a head fake by holding solidly at 2050, looking as if it had more strength. Now that strength has eroded in the distribution sessions, and now it is making a more realistic test. The volume has to improve; the test has been too sharp on too high of trade to give much comfort it is going to hold. It still has a shot at doing so, but it will have to shape up or make a double bottom near the 200 day MVA (1917) or 1900. That, by the way, was our first scenario for this correction whereby it would form a double bottom with handle over a 3 to 4 month period. Thus in the bigger picture it is still on tract in the correction.
S&P 500/NYSE
Still refusing to give in, showing another doji over the 50 day MVA on rising, above average volume. But for the NASDAQ and SOX action we would view this as positive.
Stats: +0.67 points (+0.06%) to close at 1128.84
NYSE Volume: 1.562B (+1.38%). With the recovery and slight gain this was not a distribution session, and the high volume recovery is good action to see just as it was on Wednesday. Whether it can make something of this by itself and pull NASDAQ along is a stretch.
Up Volume: 772M (+302M)
Down Volume: 785M (-254M)
A/D and Hi/Lo: Decliners led 1.06 to 1. Wow. After a -7:1 and -3.5:1 this seems like surging positive breadth.
Previous Session: Decliners led 3.51 to 1
New Highs: 68 (+32)
New Lows: 129 (-95)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Once again large caps undercut the 50 day MVA (1127), but once again rallied back to hold that level on the close. The higher volume rebounds show some strength in the stocks regardless of NASDAQ action. 1125 held in late January and early February as a bottom, and that is why SP500 is finding some legs here. It still has not suffered much of a correction on this test and the lack of a real consolidation is a limiting factor on any subsequent upside move. Much of what it does over the next few sessions, however, will be influenced significantly by NASDAQ's ability to hold 1990 to 2000.
DJ30
Once again similar action to SP500, undercutting the 50 day MVA (10,390) and then rebounding on even stronger, above average volume. The last two sessions where it has rebounded from the lows volume has far outpaced the prior selling volume. That is very positive as DJ30 tries to hold together its short double bottom with handle pattern. As with SP500 it is too short of a correction and it may come back to 10,000 once more to form a larger double bottom.
Stats: +19.51 points (+0.19%) to close at 10397.46
Volume: 263 million versus 230 million Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Tomorrow is the April expiration, and true to form we have seen volume rise and stocks move all over the map ahead of expiration. That movement of course was exacerbated by the earnings and interest rate worries.
After hours stocks were getting no help from earnings as IBM met expectations but was light in some areas. NFLX just met and was getting sold off. LEXR was being sold on its earnings. The QQQ was getting hammered. There was not a lot of interest in the earnings yet again and stocks that were down in regular hours were down further. Some that were up were not after hours. In short, earnings continue as a drag in the early rounds.
There will be some time to heal before the open with industrial production and capacity and then Michigan sentiment right after the open. Economic data has not been the market's friend during this past week, however, as investors are pricing in the uncertainty as to what the Fed is going to do.
This correction is certainly separating the wheat from the chaff as the strong stocks are able to hold support while others break lower. We note that breadth is improving, indicating that the selling is trying to take a respite. Whether NASDAQ can successfully hold at the 2000 level to continue the base, however, remains to be seen. It has to get over the distribution and then continue to build the base. The action was pretty solid up to this week; now the accumulation versus distribution is a dead heat. That means more work to be done in getting the rest of the correction completed.
Expiration Fridays for the most part have been rather calm compared to the days preceding it. Friday we anticipate volume will probably fade. That won't tell us a lot about the action that transpires, however. In that event what we need to see is stocks continue to hold support and rest and recover after the selling in anticipation for the next rebound. How NASDAQ reacts at this level tells us whether the base continues to improve from this point or if it is going back to the 200 day MVA. If it follows the pattern of the early 2003 base, it will test the 1900 level.
Support and Resistance
NASDAQ: Closed at 2002.17
Resistance: The exponential 50 day MVA (2013) stalled a rebound attempt intraday on Thursday. The simple 50 day MVA (2015) along with the 18 day MVA (2018). Breakout from the pattern is 2080. 2089 is the February closing high. 2112 is the early January high. 2154 is the January high.
Support: Then a jumble of support merges near 2000. 1990 to 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 (1918).
S&P 500: Closed at 1128.84
Resistance: The simple 50 day MVA (1134) and the 10 day MVA (1133) 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 10,397.46
Resistance: The simple 50 day MVA (10,448). Price consolidation at 10,600 level. September/November up trendline (10,635). 10,747 is the February high.
Support: The exponential 50 day MVA (10,390) continues to try and hold. 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): 360K actual, 335K expected, 330K prior (revised from 328K).
NY Empire State PMI, April (8:30): 36.05 actual, 29.0 expected, 25.3 March.
Philly Fed PMI, April (12:00): 32.5 actual, 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 2
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