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4/21/04 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: None issued
Buy alerts issued: DUSA; OO
Trailing stops issued: None issued
Stop alerts issued: AFFX; NVTL
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
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4/21/04 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts issued Wednesday: None issued
Buy alerts issued: MEDX; RMD; ALAN; LACO; OO
Trailing stops issued: NSM; NUS
Stop alerts issued: NVTL
SUMMARY:
- Greenspan softens his statement, stocks rebound on volume.
- Gold continues to dive as dollar rallies on strengthening economy.
- Stocks respond with a stronger accumulation session, building the base but remaining below near resistance.
Stocks fight off early indecision, rally on volume.
Stocks fought to a standstill all morning as the market swung back and forth. Neither had the advantage as Greenspan spoke to the Senate banking committee. Given the Tuesday distribution, that was not a positive for the upside as the indexes remained below near resistance. Greenspan mitigated his blunter statements regarding rate hikes from Tuesday, however, and that gave buyers an entry. Late in the morning we noted that the market was putting in a short term bottom and was going to attempt a rally. Sure enough it jumped off that intraday double bottom and managed to hang onto and even expand gains into the close.
Volume jumped as well as the market met distribution in the face with higher volume accumulation. That is significant; distribution guts the market, but after three such sessions in 6 on NASDAQ, buyers stuffed the Tuesday action with a 2 billion share gain. It was not deliverance but it was an appropriate response for a market that is not teetering on collapse. The dollar rallied, gold fell, stocks rose on volume, and the 2003 leaders were back in the lead big time. These are all signs the market is still building its base, not eroding away on continued rate hike fears. We noted Tuesday that the market would eventually work through the rate hike fears and economic expansion would be seen as good. That seemed to start in a small way Wednesday.
THE ECONOMY
Dollar continues its surge while gold investors purge.
We recall not too far back worries that OPEC would start pricing oil in euros because the dollar had fallen significantly against that currency. That, of course, was in addition to foreign investors dumping dollar based assets and converting dollars to other currencies because they would not be able to obtain the same rate of return. That is always a potential problem as we have written about in the past, but we also noted that the dollar was not at a level that would cause that to happen.
The problem for the dollar was an economy that would not catch gear and the Fed promising to keep rates low indefinitely. With the dollar out of the picture as a place to put new money (other than Japan intervening continually to keep the yen weak), gold became one of the options of choice. Gold also was being used to store wealth on doubts the US economy was maintaining its rate of growth.
All of those factors started grinding to a halt two weeks back with the strong jobs report. Suddenly the economy was viewed as possibly growing again. That has been confirmed as the data continues to come in. We have already stated that Q1 GDP would be revised close to 5% growth; we now think it will top 5%. No problem with the economy, so that reason for buying gold is over. Gold has dumped the past week. As we have stated before, gold was not rising on fear of inflation but a view that the economy was weakening. Now with a strong economy and the Fed ready to raise rates to ward off any potential inflation, gold has lost its recent luster. In addition, Japan has stopped buying dollars, but the dollar is still climbing. US rates have risen on their own, making the dollar again an attractive place to park money while deciding what other investments you are looking to move into.
Greenspan tones it down.
Greenspan remained clear that rates would rise but he also noted that the threat of inflation remained at bay because of the strong productivity that was still evident as a result of the late 1990's technology ramp up. Thus he put rate hikes in perspective: they naturally rise when the economy is good. The Fed was not going to jump ahead of the natural rise. Sounds good if the Fed can stick to its plan. It also helped when Greenspan said that the Fed has hiked once in the past and that was enough. That won't do it this time, however, as rates are so low. We figure 75 to 100 basis points. Greenspan said they usually last a year in hikes if they go past the one jump.
We expect the Fed to make two hikes, raising the FFR 50 to 75 basis points, then wait and see what happens. That is exactly what is needed. The Fed does not want to get into a protracted rate hiking binge as it did in 1994 where it ended the hikes with a 75 basis point bump. That put the market into a sideways spin throughout that year. If the Fed raises 50 basis points and goes neutral on its bias, basically indicating that is where it is going to stay unless inflation truly shows up (as opposed to its ridiculous inventions of inflation indicators in the late 1990's), the market will rally. The bond market will rally as well. Right now the market is simply showing justifiable concern regarding the Fed and an anticipated rate hiking round.
Chain store sales continue to rise, businesses report solid results.
Concerns about a fading consumer should be fading. Chain store sales last week rose 1% on top of a 0.8% gain the prior week. That is a 5.9% gain year over year according to UBS Warburg. Redbook reported robust sales as well with a 4.8% gain year over year and a 5.4% gain the prior week. While the recession showed us the consumer is not the sole key to any recovery, it is a necessary part, and it is still expanding nicely.
The National Association of Business Economics echoed the chain sales results as a sign of economic strength. Demand remained strong, holding a 6.5 year high hit in January. 7% of members were hiring versus 1% in January. Selling prices are rising though materials costs are rising as well. Profit margins are also good but they are being squeezed some by the higher prices.
Overall this is just more evidence that the economy is still growing. Why on earth would anyone want to do away with what has jumpstarted a dead as doornail supply side, the part of the equation that was missing for 3 years? We are not standing in that line.
THE MARKET
You cannot complain about the intraday action or the volume. Stocks started sluggish, bouncing all around flat as Greenspan talked and investors decided whether to continue the selling or try to stem the bleeding. They found footing and rallied into the close. Good intraday action. Volume surged on the rebound, coming in not only above average but well above average. That poked a finger in the eye of the distribution Tuesday. The point gains nowhere nearly equaled the selling losses, and the breadth was a shadow of the one-sided Tuesday trade, but the market seemed to start getting used to the idea that a strong economy is a good thing and that interest rates do naturally rise when the economy strengthens.
The intraday action looked solid, but the indexes are still below the support that they just broke. That can always turn into resistance if the market cannot jump right back through it. NASDAQ is lingering at the late 2003 tops, the SP500 below 1125 and the 50 day EMA. It was very good to see SOX hold the line and recover the 200 day SMA, leading the market in percentage terms. It was good to see the small caps jump off the 50 day EMA and gain 1.2%, the second strongest sector of the day. It was good to see NASDAQ post a 0.9% gain on excellent trade. The three horses from 2003 were back and the market does well when they do well.
The action shows that the market is not going to fold up and leave town. We noted Tuesday we wanted to see volume fall. Well, we left out the scenario where stocks rise; then you want to see volume rise. NASDAQ may still test the 200 day SMA before this is over, but the resumption of immediate accumulation in the face of the Tuesday distribution is the best response. The basing action continues, and the Wednesday volume on the gains keeps the market working on a breakout to come.
SOX remains intriguing. It tends to lead the selling and the rebounding. It undercut the 200 day SMA Tuesday but was right back over that level Wednesday as NASDAQ volume jumped. Lots of chips reported after hours. KLAC beat the numbers but said orders could fall 15%; chip equipment stocks were being stripped after hours. Other chip stocks reported solid results and were up (e.g., COHU). Thus SOX is up in the air once more for Thursday as this important leadership group tries to hold the 200 day and start its double bottom rebound right now.
Market Sentiment
VIX: 15.6; -1.07
VXN: 22.82; -0.25
VXO: 15.66; -0.85
Put/Call Ratio (CBOE): 0.68; -0.13
NASDAQ
Sold to a new April low then reversed to post a decent 0.9% gain on a nice volume surge. Still has to deal with near resistance, however.
Stats: +17 points (+0.86%) to close at 1995.63
Volume: 2.085B (+7.91%). Volume surged as stocks rebounded from the Tuesday distribution. Simply put that means there were more buyers in the market Wednesday than sellers on Tuesday. That is not really difficult to comprehend as the market was in decent shape Tuesday until it was 'Greenslammed' and sent spiraling downward in the last 1.5 hours. Once the market adjusted to the idea that yes rate hikes were coming, it was able to resume the move it was making Tuesday before Greenspan talked. That was quite a plunge, but it was based on overblown fears. The market started adjusting back Wednesday to where it was heading before the speech.
Up Volume: 1.383B (+1.049B)
Down Volume: 661M (-915M)
A/D and Hi/Lo: Advancers led 1.49 to 1. Nothing to get all fired up about.
Previous Session: Decliners led 2.47 to 1
New Highs: 79 (-40)
New Lows: 45 (+11)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Sold to 1973 on the low and reversed to close at the high and just over the November and December 2003 closing highs (1990). It is still below some psychological resistance at 2000 but also the 50 day EMA (2011). Not an enviable position though after the slight undercut of the February low that formed the left shoulder to the potential reverse head and shoulders base it could be ready to rebound through these levels. It also could easily fade down to the 200 day SMA (1924) for a fuller test of the March low (1895). The point is that the index continues to build its base and work toward the breakout. After a 70% run from March 2003 to the January 2004 peak, it takes a bit of time. As long as the accumulation holds positive, however, we know money is moving into stocks, and that will lead to a breakout.
S&P 500/NYSE
Similar action to NASDAQ, rebounding on very strong trade though unable to take out the support it just broke.
Stats: +5.94 points (+0.53%) to close at 1124.09
NYSE Volume: 1.724B (+14.32%). The strongest volume since March 11 when the index thudded lower. A very good reversal from the Tuesday distribution session, keeping the index building toward its breakout as well.
Up Volume: 1.077B (+777M)
Down Volume: 639M (-563M)
A/D and Hi/Lo: Decliners led 1.14 to 1. Notably declines still led even with the small caps and mid-caps posting 1.2% and 0.9% gains respectively. Certainly not a clear indication of conviction.
Previous Session: Decliners led 3.28 to 1
New Highs: 56 (-48)
New Lows: 155 (+85)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Same problems, same positives as NASDAQ. SP500 further undercut the April lows but then reversed on strong volume to close positive and near the session high. It was not, however, able to clear price resistance at 1125 or the 50 day EMA (1127) or the simple 50 day MA (1133). Those levels it just broke stand in the way to the rebound. Tuesday jumbled the picture a bit, but it is still hanging onto trying to hold up and form the right shoulder to a 3 month reverse head and shoulders pattern trying to form. That is a tougher road at this point, but the Wednesday volume does not hurt.
DJ30
The blue chips managed the slightest of gains, but the action was intriguing. It tapped 10,250 on the low and rebounded to show a tight doji on rising, above average volume. That candlestick pattern often indicates a rebound coming after a pullback, but it is not a lock. DJ30 showed good action rebounding on strong volume, but the pattern is still ambiguous as it sits below the 50 day EMA (10,388) and halfway between the March low (10,000) and the April high. NASDAQ and the SP500 are setting the pace.
Stats: +2.77 points (+0.03%) to close at 10317.27
Volume: 232 million versus 204 million Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
Some excellent earnings reports once more after hours had stocks such as EBAY and QCOM racing higher. Chips stocks were up and down as KLAC beat estimates but warned that orders could fall by 15%. The early bump higher on the earnings was met with a thrashing. Thus, competing stories face the market Thursday. Semiconductors are the most important group; how they handle what KLAC will set the early stage.
The weekly jobless claims report is out before the open, the lone scheduled economic report. For all of the attention paid to the economy this week there were very few actual reports. A very good report could help some as it did last week (though the market viewed a good report as higher claims, lower continuing claims), but with the jobs report starting to show improvement, that is now the real focus as the weekly number has done its job.
From a technical sense the important near term battle is what the indexes do after the high volume gains Wednesday. Will they recover that support just broken or continue to slump toward the 200 day SMA or the March lows. If the KLAC results hamstring SOX, the triumvirate of 2003 leadership will find it hard to lead the market for another day, and that will quell the recovery attempt and continue the set up for the test to the next lower support that would more or less set up the double bottom pattern.
The Wednesday action was good to see but for now it does not change anything. The market is still working through this base, it is still building positive accumulation, but it is still not ready to make the breakout. That keeps us looking at stocks setting up to make the breakout or testing a previous breakout. Those are the best high percentage plays and can make us the most money when the market does complete its base and breaks out once more. Those are the stocks that give us multiple entry points as they rally and test, rally and test. They also generate the really big returns beyond the initial run. When the market makes the next breakout then we can really reap the rewards from these stocks that are not producing bad returns even now.
Support and Resistance
NASDAQ: Closed at 1995.63
Resistance: Still in the middle of 1990 to 2000, the top of the late 2003 base. The exponential 50 day MA (2011), the simple 50 day MA (2012), the 18 day MA (2011). 2050 represents some prior price points. Breakout from the pattern is 2080. 2089 is the February closing high. 2112 is the early January high. 2154 is the January high.
Support: Some prices from the March consolidation attempt (1943). The 200 day MA (1924). Mixed tops and bottoms at 1900. The March low (1896).
S&P 500: Closed at 1124.09
Resistance: 1125 represents some price points. The exponential 50 day MA (1128) and the simple 50 day MA (1134) and the 10 day MA (1130). 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: 1106 is a May 2002 top and represents some early 2001 lows. 1096 to 1100, then the March low (1087). 1075 to 1070 from the December consolidation.
Dow: Closed at 10,317.27
Resistance: The exponential 50 day MA (10,388). The simple 50 day MA (10,436). 10,570 is the April high. Price consolidation at 10,600 level. September/November up trendline (10,670). 10,747 is the February high.
Support: 10,000 to 9900-9850. The 200 day SMA (9924). 9859-9855.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
4-19-04
Leading economic indicators, March (10:00): 0.3% actual, 0.3% expected, 0.0% February.
4-21-04
Fed Beige Book (2:00): Notes economic activity increased across the board.
4-22-04
Initial jobless claims (8:30): 340K expected, 360K prior.
4-23-04
Durable goods orders, March (8:30): 0.7% expected, 2.5% February.
End part 1 of 3
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