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us stock market, trade stock
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4/22/04 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 some solid plays for the next session.
MARKET ALERTS
Targets hit alerts issued Thursday: PLXT; ABMD
Buy alerts issued: ANDW; INSP; ATRX
Trailing stops issued: None issued
Stop alerts issued: None issued
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:
- Investors realizing higher rates are byproduct of strong economy.
- Snow says job growth is increasing just as he did before the March jobs report.
- Two straight accumulation sessions boost NASDAQ, SP500 over 50 day EMA.
- Subscriber Questions
Soft opening, strong finish.
Some classic bullish action continued intraday with an indecisive, choppy first hour giving way to buyers and closing the market near its high. The technical action was strong as well as stocks rallied on rising volume for the second straight session while NASDAQ and SP500 broke through their 50 day EMA, retaking that key level immediately after crashing through on higher selling volume Tuesday. Breadth was strong as well with NYSE posting nearly a 3:1 advantage to gainers. Pretty solid action.
After fretting over rate hikes for a week or so as investors suffered from flashbacks to 1999 and 2000 with the Fed's campaign against prosperity, investors started to look rationally at the current conditions. The Fed will have to raise rates; a 1% FFR is unnaturally low given the economic output. Rates rise when economic activity surges. The key is whether there are artificial impediments in the marketplace that restrict capital flow and thus really do cause those imbalances Greenspan oft spoke of in the late 1990's. Imbalances lead to inefficient allocation of resources and start inflation. Odd how those alleged imbalances in the late 1990's never caused any inflation at all except on the newly created 'prosperity inflation indicators' the Fed trotted out as excuses to clamp down on our pursuit of happiness.
Thus it is okay for rates to rise based on increased demand for money that is being put to work in an expanding economy. Investors decided, after Greenspan's more conciliatory comments Wednesday, to give the Fed the benefit of the doubt that it won't overreact. That is, indeed, a leap of faith, but one that you have to make for the economy to grow and markets to flourish. The Fed can always screw things up in the future, but in the near term the Fed is going to be a bit more pliable given its knows deep down (though never admitted publicly) that it missed the coming crash and was too harsh for too long with respect to rates. That helped unleash buyers for the second consecutive session.
THE ECONOMY
Weekly jobs report stays higher but Snow says more jobs to come.
Weekly unemployment claims fell slightly to 353K but that was more than 340K expected though lower than the 362K the prior week (revised from 360K). The 4 week average crept higher again (347K versus 344,750) and continuing claims moved back over 3 million from 2.9 million. Not necessarily a great indication but at least they are not rising.
The bigger story for the market was in Treasury Secretary Snow's comments regarding job creation. Snow was out Thursday saying that he felt the economy was growing with low inflation and that job creation was continuing to expand. While the first will be debated by those paying for health insurance, education, and gasoline, recall that Snow, before the March jobs report, said the same thing. He denied he had any early information about the numbers, but it sure was fortuitous timing. When he made the same type of prediction this time around it seemed investors were listening and that helped add some fuel to the buying fire.
THE MARKET
Once more the intraday price action and the volume were bullish: soft start, strong finish, increasing, above average volume. For the second consecutive session stocks rallied into the close on strong rising trade. That continues the smack down of the recent interest rate worry distribution sessions as investors look to the fundamentals of strong earnings, strong guidance, and an economy that continues to expand. Given the recent fear of deflation and dollar weakness, the reality of economic expansion and relatively low inflation rates and their impact on future earnings is once more being priced into stocks.
With NASDAQ and SP500 retaking key support levels the outlook has improved. We still need to realize, however, that the indexes are still working through their bases. This is excellent action within the base, answering the distribution with even stronger buying, but it is still part of the process of building for the breakout and there is still work to be done.
We continue to see positive developments. There are many stocks that were under pressure that are trying to set up double bottoms (also called 'W' bases). That is an accumulation pattern that forms two 'legs' where the stock plunges rapidly but then turns back up rapidly. The two legs form a 'hump' in between them. That hump is the breakout point of the pattern. Stocks such as HPQ, INTC, CSCO, and JNPR are trying to make the second bottom now, but they are a long way from making the breakout. They would provide a lot of support to an ultimate breakout if they continue to work on these bases and provide breakouts. In sum, even some of the laggards are setting up positive bases, but they are still a ways from being there. They often lag, however, and the rest of the market could make its move with them following and completing their patterns then breakout out later. Remember, the leaders typically breakout first and the laggards come along later. Gee, maybe that is why they get their names. Makes you think.
The positive price/volume action the past two sessions helps build the accumulation in the overall bases with SP500 showing positive accumulation along with NASDAQ. It may be that the slight undercut of the February lows that formed the left shoulder of the near term reverse head and shoulders pattern was enough to start the indexes building from there for a breakout. That move will follow the breakout from the stocks currently in good bases and ready to make the move. Those will have to be the focus as the positive action continues to build.
Market Sentiment
VIX: 14.61; -0.99
VXN: 21.35; -1.47
VXO: 14.59; -1.07
Put/Call Ratio (CBOE): 0.63; -0.05
NASDAQ
Surged back through the 50 day EMA on another surge in above average volume.
Stats: +37.28 points (+1.87%) to close at 2032.91
Volume: 2.166B (+3.88%). Volume jumped higher for the second session, both being above average in trade. This is the highest volume since the gap up on the March jobs report. In addition, not only has volume risen, the volume is relatively stronger on the accumulation sessions than the distribution sessions. In other words, even when the market distributed, there were not as many sellers as there are now buyers. There is more conviction in the buyers than there was in the sellers during the interest rate worries.
Up Volume: 1.544B (+161M)
Down Volume: 593M (-68M). 2.5:1 upside to downside. Very solid.
A/D and Hi/Lo: Advancers led 1.93 to 1. Nice to see after Wednesday's weak performance.
Previous Session: Advancers led 1.49 to 1
New Highs: 143 (+64)
New Lows: 31 (-14)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Moved back through 2000 and the 50 day EMA (2011) after a slight undercut of the February low (1990). The rising volume gives the move credence unlike the low volume rebound through the 50 day on Monday, and it may have been all it takes to set the right shoulder the reverse head and shoulders pattern that has been trying to form. It still has 50 to 60 points to a breakout from that pattern, and it will have its ups and downs before that even if it does occur. Right now the buyers have returned and cut short a trip to the 200 day SMA (1925).
S&P 500/NYSE
Similar to NASDAQ, it shot higher on strong trade and has helped form up the pattern better.
Stats: +15.84 points (+1.41%) to close at 1139.93
NYSE Volume: 1.821B (+5.61%). NYSE added 100 million shares to the Wednesday volume, posting the second very strong accumulation for the week. Again, not only was the volume rising on an up session, the volume was much stronger than the distribution sessions preceding it. Again the buyers are out in more force than the recent sellers.
Up Volume: 1.464B (+387M)
Down Volume: 356M (-283M). 4:1 up to down volume.
A/D and Hi/Lo: Advancers led 2.99 to 1. Excellent upside breadth as volume returned to the market.
Previous Session: Decliners led 1.14 to 1
New Highs: 182 (+126)
New Lows: 94 (-61)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Blasted through 1125 and the 50 day EMA (1128) and the 50 day SMA (1133), making the move on that volume that satisfies concerns about the power of the move. It is also, after a small undercut of the February low that set up the left shoulder of the reverse head and shoulders base, made a significant stride in setting the right shoulder. It may have been a tougher road to do this as noted Wednesday, but volume sure can cure those kind of problems. We would like to see it make a steady advance toward 1160, pause for another week or two as it drifts lower, then a strong breakout. Hey, why not ask for perfection given how it just pulled a classic shakeout.
DJ30
Big volume as well as the blue chips broke through their 50 day MA's (10,391, 10,433). Still below some early February resistance at 10,500 and the April high (10,570), but obviously improving on stronger trade. NASDAQ and SP500 are the leaders and DJ30 will follow even with stocks such as CAT reporting strong results and seeing even stronger moves in the future.
Stats: +143.93 points (+1.4%) to close at 10461.2
Volume: 266 million versus 232 million Wednesday. Accumulation on once again above average volume DJ30 volume.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
March durable goods orders are out ahead of the market, but earnings will once again take centre stage. MSFT beat by 5 cents, CLS beat and guided higher; the list of solid results and guidance continues. AMZN did not show as glowing a quarter, and it was getting knocked back some after hours though hardly getting taken apart.
After two strong accumulation sessions the market that averted a sell off toward the March lows, the market may try to continue the move early but then succumb to some profit taking in the afternoon to close the week. Investors were finally able to get involved in the earnings and did so with enthusiasm. That burst of buying will need a breather, and ahead of the weekend buyers will most likely back off.
That will let stocks take a breather as well and further work on their patterns just as the overall market continues to do. We have to keep in mind that the market is still working more or less laterally in a 3 month base similar to early 2003. NASDAQ is digesting 70% gains; that takes some time. For now it is doing what it needs to do and leading stocks have been showing better moves as they step out ahead of the overall market. Stocks are on track to complete the base near the start of summer, typically a slow time for the market. It never slowed much in 2003, but it was also coming off the nasty plunge. Whether it can show that same strength in the dog days this year is harder to argue.
With this positive action, however, we will continue to look for places to add to the leaders that have been making us money and for the new stocks setting up and trying to make their mark as leaders. Friday might be more of a day of rest after stocks made a good recovery, helping set up some buy points next week. We need to remember to be patient and let the stocks come to us and not chase them or move in too quickly.
Support and Resistance
NASDAQ: Closed at 2032.91
Resistance: 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: The exponential 50 day MA (2010), the simple 50 day MA (2011). 1990 to 2000, the top of the late 2003 base. 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 1139.93
Resistance: 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 MA (1128) and the simple 50 day MA (1133). 1125 represents some price points. 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 10,461.20
Resistance: 10,570 is the April high. Price consolidation at 10,600 level. September/November up trendline (10,675). 10,747 is the February high.
Support: The exponential 50 day MA (10,391). 10,000 to 9900-9850. The 200 day SMA (9935). 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): 353K actual, 340K expected, 362K prior (revised from 360K).
PPI, March: 0.5% actual, 0.3% expected, 0.1% February.
Core PPI: 0.2% actual, 0.1% expected, 0.1% February.
4-23-04
Durable goods orders, March (8:30): 0.7% expected, 2.5% February.
SUBSCRIBER QUESTIONS
Q: [Recently] (and at other times previously) you sate: "The problem is, the market looks down the road 6 to 9 months at least, and that puts it well in the range where the Fed will be raising interest rates." The election is within that timeframe. With all of the news about how robust the economy is/will be could some of the negative market performance be in anticipation of a Democratic victory for the White House (which would be an economic disaster)? Since the bond market has already effectively raised rates, it seems that something else may have a part in driving the current level of despair? Your usual insightful thoughts/comments would be most appreciated. BTW, you, John Murphy and Larry Kudlow all have equal perspicacity in my book!
A: Thaks for the nice comments. There has been speculation as to what a democratic win in November would mean for the economy and the market. It is true that the market looks down the road and not at the present (unless something happening today is unexpected, but then the market will also look ahead and see if that will impact prices down the road as well), and that the election lies ahead. As for that being the point in time for economic angst, however, we have to remember that there are still policies in place that a democratic president could not unilaterally do away with given a republican Congress. Indeed, in previous terms it seems the market enjoyed good times with one party controlling one branch, another party the other elected branch. That provides a something of a guarantee of the status quo, i.e., no major change is typically rammed through. That gives the market certainty.
Of course if the certainty is based in poor policy, ultimately we all pay regardless of who is in office. Typically the administrations that inherit poor economic conditions have to live with them and make the tough decisions that set the next economic upcycle in place. As we saw in this recovery, those can really cause a lot of friction and be unpopular while being implemented. Of course, no one gives them credit when the economic upcycle they bring about is nicely churning away, acting as if the good times simply fell from the sky. Many don't believe it, but the recovery was well underway for Bush 1; GPD grew at 4% in his last quarter of office and the boom was coming even as President Clinton took the oath of office. Clinton to his credit did nothing early to derail it and even helped it with the capital gains cuts. Those offset the earlier tax rate hikes and helped extend the boom that was ultimately doomed from rate hikes and too much money sucked away from the economy by taxes that created the so-called 'surplus.' An expansion will continue on its own, surviving a transfer of power until those that take over implement policies that undermine the advance. Tax increases, reducing incenitves to invest in the US economy, additional regulation, etc. typically cause the downfall. All actions are done with good intentions, but when you tryo to control a market such as jobs, the economy, etc., you are playing a losing game.
Thus there may be some angst at the possibility of a Kerry win if for no other reason that he would try to allow the tax cuts to expire (he won't be able to change them the way he wants; a republican Congress will stop him). For any initiatives, it would take until late summer 2005 to come up with anything to put before Congress. Then it depends upon what initiatives are put forth. That is a long way out and involves a lof of ifs. Spending has to be cut regardless of who wins. If it does not fall we end up bleeding the investment capital dry again to pay for all the waste and fraud rampant in federal programs. We learned in the late 1990's that you cannot continue to take money out of the economy and expect to have everything fall into place.
End part 1 of 2
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