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world stock market, us stock market
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4/26/04 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Monday: None issued
Buy alerts issued: IVGN; MIPS; HEB; RHAT
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:
- Stocks never recover from new home sales results.
- March new home sales at another record.
- Market rests on low volume after three solid sessions to close last week.
- Subscriber Questions
Interest rate fears creep back in.
The market was poised for a soft open after a solid surge to end last week, and buyers used that softness to move in and spark an early rally. At 10ET the new home sales data was released, and the record sales evoked immediate selling that pushed the indexes negative. The market made one attempt to bounce. That rebound failed before lunch and stocks never got back on their feet despite a surging biotech sector on further good news regarding the new crop of cancer drugs.
That good news could not offset the lingering interest rate concerns or the serious weakness in semiconductors. Indeed, the selling was not that bad as volume contracted. SP500 managed to tap toward the 50 day SMA and hold but SOX undercut its 200 day SMA, and though it rebounded, it could not recapture that key level by the close. SOX can be a market leader both upside and downside. Even when it is not leading, however, it can act as an anchor or drag on the rest of the market, holding back attempted moves. It is definitely struggling in its attempt to hold off a 5.5 month head and shoulders pattern that is putting a lot of pressure on the sector as it fights to hold the 200 day SMA.
All in all, the action was not destructive as SP500 and NASDAQ held above support as volume backed off to well below average levels. That tells us there was no dumping of the shares just purchased last week, and it continues the base building process that sets up the next significant move higher.
THE ECONOMY
March new home sales post another big gain.
Sales jumped 8.9% to 1.23 million annualized units, higher than 1.13 million in February and the 1.17 million expected. Those were the highest since September, and the largest monthly gain since June 2003 when rates hit the lowest levels sine the 1960's. Mortgage rates were very low in mid-March but started to rise as the month continued. This month has seen rates rise significantly as the bond market sold off on rate hike fears. Thus the double edged, you cannot win no matter what, response to the data: too strong so rate hikes must be coming versus cannot continue because rate hikes are coming. No wonder financial station reporters keep talking of a trading range; with that kind of mindset regarding each set of economic data the action sometimes resembles a dog chasing its tail.
The March number reflected some fence sitters jumping in as rates hit lows but then started to rise. That always pushes the number up. Further, interest rates are still extremely low versus historical standards, and that keeps housing affordable. Sure refinancing has plunged on the rising rates because anyone that wanted to refinance has done so at lower rates. The ebb and flow of rates keeps buyers moving into new purchases, and as long as rates remain historically low the housing market will be fine given all of the boomers buying second homes and the upwardly mobile class that has again emerged as a result of the economic recovery.
THE MARKET
Monday was the kind of session we expected Friday: fading back before the weekend on lower volume after two strong accumulation sessions. Last week was a week of contrasts with high volume selling the first half and then even higher volume buying the second half. Meeting that selling with stronger buying was a very good; the market refused to cave in and buyers saw an opportunity on the interest rate selling to get in at some better prices.
Thus the action Monday was not bad at all outside the selling in SOX. Volume was well below average, SP500 tapped at the simple 50 day MA and held, and NASDAQ is still above some pretty solid support as well. There was not any institutional selling, and stocks mostly held above near support on light trade as all indexes other than SOX posted losses easily less than 1%. Of course, throwing out SOX is similar to excluding gasoline costs from the CPI; it distorts the picture. SOX rallied back late but could not quite retake the 200 day SMA. It continues as the main drag to the market overall. The rest of the patterns look pretty solid.
Market Sentiment
VIX: 14.77; +0.76
VXN: 21.83; +1.15
VXO: 14.94; +0.72
Put/Call Ratio (CBOE): 0.66; -0.04
NASDAQ
Tried to extend the late week rally but ran out of steam and sold back on very low volume.
Stats: -13 points (-0.63%) to close at 2036.77
Volume: 1.732B (-11.38%). Below average volume as stocks gave back some of the strong volume gains from last week. This is the way you want to see price/volume action work, particularly after coming back from some distribution early in the week.
Up Volume: 653M (-574M)
Down Volume: 1.064B (+386M)
A/D and Hi/Lo: Decliners led 1.38 to 1. Once again modest downside. Combined with the volume this indicates very little selling pressure relative to the recent accumulation.
Previous Session: Decliners led 1.16 to 1
New Highs: 148 (+32)
New Lows: 25 (+6)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Rallied to 2059 on the high but that was over with the release of the new home sales. On the low (2031) it held well above support at the 50 day EMA (2014). NASDAQ was held back by selling in SOX, but again, the low volume selling even as SOX sold through the 200 day SMA indicates the strong surge last week that rescued the 3 month reverse head and shoulders pattern has some staying power.
S&P 500/NYSE
Tapped the 50 day EMA on the low and managed to hold that level on low trade, continuing the base.
Stats: -5.07 points (-0.44%) to close at 1135.53
NYSE Volume: 1.29B (-7.38%). Very low, below average volume as SP500 gave back a small portion of the Wednesday and Thursday high volume gains. This modest pullback on light volume is similar to NASDAQ action and just want you want to see on a breather after a strong gain.
Up Volume: 450M (-94M)
Down Volume: 811M (-6M)
A/D and Hi/Lo: Decliners led 1.7 to 1. Still struggling but no longer the -3:1 seen two and three weeks back when the NYSE was under pressure.
Previous Session: Decliners led 1.89 to 1
New Highs: 131 (+26)
New Lows: 220 (+62). New lows are ratcheting higher though not at a serious level yet.
The Chart: http://www.investmenthouse.com/cd/^spx.html
Continues to work on its reverse head and shoulders pattern, holding more or less steady Monday on significantly lower volume. No distribution, and it held the simple 50 day MA on the low (1132) and was able to bounce some. Basically a do nothing session where NYSE stocks took a breather after a solid recovery on strong volume to rebuff the distribution. It continues its base, and at this juncture that is the solid action it needs: accumulation sessions, low volume pullbacks, then more accumulation session (higher volume gains). That builds a strong foundation for a breakout and subsequent rally.
DJ30
Basically held steady after it too underwent some solid accumulation to end last week. DJ30 tapped some resistance on the high (10,512), tapped some support on the low (50 day SMA at 10,396) and rebounded to cut its losses at the close. Again, its pattern is not our favorite, but it is doing what it has to as the index continues to build its base as a tag along to the SP500.
Stats: -28.11 points (-0.27%) to close at 10444.73
Volume: 183 million Monday versus 277 million Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
The dramatically improved price/volume action continued even though the market posted a loss Monday. Lower volume, quiet sessions following strong volume surges are good action; the sellers are in charge, but there are very few of them compared to the buyers the prior upside sessions. Thus we view Monday as constructive even though the selling was triggered by a robust home sales report, an indication that there are still concerns about rate hikes and how they will impact stock prices down the road. As we have noted before, that is not unwarranted given the Fed's history of 'managing' the economy via rate hikes: it starts with the best intentions but then loses its focus along the way and hikes to far.
That is keeping a lid on the action overall. The market continues its positive action in the base, but that rate hike fear is also keeping the action subdued. When building a base, that is not bad. Indeed, the high volume we saw last week on the upside sessions was exactly what you want: mostly quiet trade then higher volume as stocks move up the right side of a pattern. In this case it was even more important given the distribution in the first part of the week.
Tuesday sees another important economic report as April consumer confidence is announced. This is viewed with great concern, but as we have written many times, the sentiment survey rarely tracts consumer actions with respect to ceasing consumption. Only when sentiment gets down into the sixties does it start to impact actions adversely. Generally sentiment is stagnant, and that may actually help a market that still has some jitters about future interest rate hikes and their impact on future earnings. Who says the market does not view the world in terms of the future?
Earnings are still coming in fast, and we will see more economic heavy artillery Thursday with GDP revisions. That has the potential to rattle the market as it is going to be higher than originally thought and could top the 5% expected. One more the market will have a chance to test its resolve. That, however, is just the preliminaries to the April jobs report the next Friday. There is a lot riding on that report in terms of how investors view the economic strength and thus Fed rate hikes as well as how the political football gets kicked around. You almost wish you could just fast forward to late November and be done with the campaign, one that already seems to have been ongoing for months.
Monday the market certainly started that lateral move ahead of the jobs report that we discussed in the weekend report. That would put the NASDAQ base at nearly 4 months and in good position for a breakout. Again, would a strong jobs number provide a breakout move with the power of the early April jobs-related surge? That would surely mean the economy is strong and that surely the Fed would start rate hikes in August (at least in the market's view). The issue is whether the market would be comfortable with the idea of rate hikes by that time.
For now the market keeps doing what it has to do, the most recent being the strong volume comeback last week in the face of volume selling. We anticipate it will continue to build the base ahead of the jobs report, not getting too extended ahead of the number but showing positive price/volume action. We continue to look for those stocks that are setting up well for a breakout, that are testing solid breakouts or otherwise show promise. The majority of the strong stocks in this rally continue to hold support on the pullbacks as they too set up for the next breakout attempt. It looks as if this is all coming to a head near the jobs report as the market readies for a breakout just as stocks get ready to head into the summer, typically a slow period. Thus there may be a breakout that provides some modest upside just in time to move laterally into another base during the summer months.
Support and Resistance
NASDAQ: Closed at 2036.77
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 (2014), the simple 50 day MA (2009). 1990 to 2000, the top of the late 2003 base. Some prices from the March consolidation attempt (1943). The 200 day MA (1929). Mixed tops and bottoms at 1900. The March low (1896).
S&P 500: Closed at 1135.53
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 10,444.73
Resistance: 10,570 is the April high. Price consolidation at 10,600 level. September/November up trendline (10,700). 10,747 is the February high.
Support: The exponential 50 day MA (10,396) and simple 50 day MA (10,423). 10,000 to 9900-9850. The 200 day SMA (9949). 9859-9855.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
4-26-04
New home sales, March (10:00): +8.9% (1.23M) actual, 1.168M expected, 1.163M February.
4-27-04
Consumer Confidence, April (10:00): 88.5 expected, 88.3 March.
Existing home sales, March (10:00): 6.2M expected, 6.12M February.
4-29-04
GDP-Advance, Q1 (8:30): 5.0% expected, 4.1% prior.
GDP chain deflator, Q1 (8:30): 2.0% expected, 1.5% prior.
Employment Cost Index, Q1 (8:30): 0.9% expected, 0.7% prior.
Initial jobless claims (8:30): 343K expected, 353K prior.
4-30-04
Personal income, March (8:30): 0.4% expected, 0.4% February.
Personal spending, March (8:30): 0.7% expected, 0.2% February
Michigan sentiment revised (9:45): 94.0 expected, 93.2 prior.
Chicago PMI, April (10:00): 61.0 expected, 57.6 March
SUBSCRIBER QUESTIONS
Q: Thanks for your easy to follow analysis! How do you calculate accumulation?
A: You know what they say, simple minds, simple statements. Thanks for the compliment. If you have to use a lot of 'financialese' to get the point across, there probabaly is not much of a point to get to.
As for accumulation, it is based on a pretty straightforward premise. During a stock's life it will rally and rest, rally and rest. Sometimes it rallies a long time with just a few short rests, and then slips into a deeper sleep (some would say coma). You see this all the time: a stock breaks out from one of these deeper sleeps and runs higher, making periodic pullbacks to the 10 or 18 day EMA. After 4 or 5 of these it slips to the 50 day EMA. If it is really strong it rebounds and starts right back up, using the 10 and 18 day EMA as support for another run. If it cannot resume that move after the 50 day EMA test it often falls into another more extended base where it builds for the next breakout or a further breakdown.
That is where accumulation counting comes in. During one of those longer slumbers, a.k.a. a base, big money is either quietly buying the stock or is selling it. Bases can last from 6 to 7 weeks on up to a year or more. What we look for during the base is generally positive price/volume action where the weeks that the stock posts a gain on rising volume outnumber the weeks where the stock loses ground on rising volume. We look for bases where the accumulation is positive (more up weeks on rising volume than down weeks on rising volume). The bigger the up to down ratio, the better.
We also look at the price/volume action in general on a daily basis. Volume typically is high as the stock falls into the base, correcting back after a solid run. Then as the stock levels off and moves laterally, volume dries up relative to the selling volume. Ideally you want to see a lot of below average volume sessions. Then when it starts back up toward the former high you want to see volume start to swell. Often a base does not start to show positive accumulation until this stage. If it already shows good accumulation before this starts, that is very positive.
We also look at where the base forms. If it forms over key support such as the tops of a prior base, that is very good; that shows those longer term holders as using that level to buy more shares. The 50 day EMA is another very good support level for a base to hold as it forms; insitutions often use this level to add to shares, and if they hold it over that level during the base that is a sign of strength. Couple that with solid accumulation, and you have the making of a good base that can give rise to a strong breakout and run higher up those short term moving averages.
End part 1 of 3
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world stock market
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