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4/27/04 Technical Traders Report Update
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Technical Traders Report Subscribers:
Full reports issued Monday, Wednesday and Saturday. Tuesday and Thursday a market summary and a few solid plays for the next session are issued.
MARKET ALERTS
Targets hit alerts issued Tuesday: None issued
Buy alerts issued: CDIS
Trailing stops issued: CHT; VRNT
Stop alerts issued: TMWD; CBR; R
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 remains fragile with worry as it continues to base.
- Consumer confidence jumps on back of better jobs outlook.
- NASDAQ and SOX distribute as market sorts wheat from chaff.
Another Tuesday brings on some higher volume selling, but its effects were limited.
The market had momentum pre-market, rallied upon the open, faltered some, but then surged on the April consumer confidence that handily beat expectations. That the market responded favorably to good news was noteworthy. Volume was light, however, with few stocks moving much from the flat line other than those with specific news, either good or bad. Stocks drifted lower and then set up for a rally attempt in the afternoon.
The market was set but the world was not. SOX had rallied back to the 200 day SMA, but it started to falter just as news hit of terrorist bombings of foreign diplomat areas in Damascus, Syria and of intensified fighting in Fallujah. Quiet volume started to grow as stocks lost their bid and sellers jumped on top of the news. Semiconductors had stalled and then turned ugly on the wire reports.
NASDAQ stripped off 20 points in 45 minutes but managed to check up and post a modest bounce into the close. It was unable to turn green by the bell, suffering a case of modest distribution. The pattern continues: light volume Monday, stronger volume selling Tuesday. Overall the selling was much lighter than the two prior Tuesdays as the indexes mostly held support on a day that, despite the late drop, was fairly orderly. Most stocks held support, but we saw more stocks succumb to the pressure, breaking down on higher trade. The basing action continues, and the action is getting frustrating for just about everyone making a living in the market. That drives pessimism higher, increases frustration, and causes emotional decision making.
That is precisely the type of action you would see in any base with merit, and is exactly what we saw in early 2003. Thus, though aggravating, the action remains good overall, and it is incumbent upon us to keep a clear head as the market continues to work through this base. For now the action is still constructive, and if it remains so for a few more weeks, it will be ready to move and provide a very good environment for most stocks to rally.
THE ECONOMY
Jobs growth helps bump up confidence.
April consumer confidence topped expectations (92.9 versus 88.5 expected and 88.3 in March), a contradiction to the preliminary Michigan report (no surprise there), and the welcomed by the market. Strength was solid with gains in both current conditions (90.6 from 84.4) and expectations (94.5 from 91.3). Expectations include those planning on major purchases in the next six months such as autos, homes, vacations, etc. With all of the sub-indexes in the 90's, confidence posted its best showing in over a year.
The jobs sub-indexes were significantly stronger as noted by the Conference Board. Those finding jobs hard to get fell by 2.5 points (27.6 from 29.9), a 'big' drop according to CB members. Those finding jobs plentiful rose to 15.8 from 14.7. Again, the CB states those are solid gains, and in conjunction with the rest of the report, paint an improving picture. The key, however, is continued jobs growth. The 308K jobs in March gave the US worker a shot in the arm. Now the promise that number held needs to be fleshed out in subsequent months.
Don't forget to put it into perspective. The gain is nice and it makes everyone feel better (confidence begets confidence). Historically, however, consumers don't stop consuming until confidence breaks down and starts showing readings in the fifties and sixties. The consumer has held well above those levels, and thus we never really saw a severe decline in the recession; the consumer just changed buying habits month to month, shifting from autos to non-durables to houses and back. That kept economists worried, but it never slowed the consumption side to dangerous levels.
Existing homes sales post second best month ever.
This segment is 80% of the single family dwelling market, and it was up 5.7% (6.48 million annualized units). That beat February (6.13 million, revised higher) and expectations (6.2 million). That was not surprising given the strong new home sales reported Monday. Interest rates may be rising but the improving jobs picture keeps buyers in the market. Again, mortgage rates are still historically low, so with an improving economy and potential buyers feeling better about the job market, the continued expansion in home sales for the present is not surprising. When rates continue to rise then we will see how hot the demand remains; it is a fact that higher rates start pushing ownership out of the range of many potential owners.
Chain store sales soften.
Consumers say they are confident, but weekly sales at the big chains fell. Not necessarily a correlation (or lack thereof) as weather and other factors can effect sales. Indeed, cooler weather got the blame for spring apparel sales. Redbook reported a 4.7% gain in sales year/year, down from the 4.8% gain reported the prior week. April sales are running 2.3% lower than March. The UBS report showed sales last week falling 0.5% versus a 1% gain the prior week. Overall sales slowed but remained robust, in line with continued consumption as seen in last month's retail sales report.
Once again we have to put it all into perspective. Too much print is devoted to retail sales and the consumer versus the supply side (business production and spending). The consumer is without question a key to the economy. As seen in the recession, however, the consumer cannot carry the economy. Further, if the business side of the economy is not investing in growing supply to meet demand, then we have the problems with bottlenecks and lack of supply that can lead to inflation, or as the Fed kept saying in the late 1990's, 'imbalances' in the economy. Of course, the imbalances the Fed saw were mostly illusory as the Fed was hell bent on finding some reason to forecast inflation so it could put the brakes on the US expansion and let the rest of the world catch up and help the ultra wealthy fight off inroads by the new wealth creators. The plan worked. The US economy dove into recession and took most of the world with it.
THE MARKET
SOX remains the weak link.
SOX posts a positive session, the market does likewise. SOX struggles, the market struggles. Early Tuesday SOX was again positive. SOX lost its interim battle with the 200 day SMA, however, and the market came under fire. That, of course, was helped by some world news that was again wearing on investors.
Again, the market remains subject to any number of events; world (war, terrorism), domestic (political, economy, jobs), perhaps extraterrestrial (concerns over bringing Mars rocks back to earth and importing Martian pestilence). That uncertainty fostered some distribution on NASDAQ and SOX. SP500 and DJ30 gave back the lion's share of their gains on the session as volume rose.
Overall, however, the market held its ground with SP500, DJ30 and NASDAQ easily holding above near support. The weakest link is of course SOX, and it did not violate any support simply because it is already below support. It failed once more to retake the 200 day SMA (477) and that is the drag on the rest of the market. It can still pull off a double bottom here, but you have to ask again, is the SOX leading the rest of the market or is it following, just waiting for the other indexes to finish basing. SOX tends to lead, but it would not take much for a test of the March low at 450 to set it up for a rebound.
The Tuesday action in NASDAQ and the large caps was more base building. As the base wears on frustration rises among investors (count the times you hear the question 'how do you make money in this market?' asked each day on the financial stations) as the majority of stocks go nowhere slowly while the few that are moving either soar or hit the floor. Picking sound bases is the best way but even those stocks can get rocked by specific news. Stocks are getting ground up in this base with some falling out while most continue to be reconstituted inside the base, preparing for the next move. All the while that disdain for the market grows.
This is classic base building action where the investor gets frustrated and worn out. Again, the overall action remains positive with accumulation continuing its lead over distribution, the indexes mostly holding support, good bases still forming, and economic data still improving. What we are doing is focusing on the bigger picture. As one subscriber notes, the QQQ, SPY, and DIA are all in 2 year cup with handle bases, and the action this year is acting as the handle to those bases. That analysis fits exactly with what the near term action is showing as well.
Market Sentiment
VIX: 15.07; +0.3
VXN: 21.84; +0.01
VXO: 14.98; +0.04
Put/Call Ratio (CBOE): 0.72; +0.06
NASDAQ
Volume jumped late as NASDAQ gave back the early gains but managed to hold easily above near support.
Stats: -4.24 points (-0.21%) to close at 2032.53
Volume: 1.978B (+14.25%). Volume surged in the late selling, pushing trade above average. A distribution session, its fourth in ten sessions. That string was broken up by two very strong accumulation sessions, however, to end the week.
Up Volume: 642M (-11M)
Down Volume: 1.314B (+250M). Volume flipped over in the last two hours from positive to negative.
A/D and Hi/Lo: Decliners led 1.03 to 1. Interesting how decliners did not jump substantially late in the session even as NASDAQ sold harder. Breadth had been flat all session; the lack of rising downside breadth indicates the selling was, at least on Tuesday, not too heavy. Of course, it may have simply run out of time though it was bouncing on the close.
Previous Session: Decliners led 1.38 to 1
New Highs: 124 (-24)
New Lows: 31 (+6)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Again stalled out at 2050 for the third straight session, but this time volume rallied as it turned back. The action was decent up to the reversal (volume was running a bit lower), and the selling was not that violent. NASDAQ held above the 10 and 18 day EMA (2025, 2020) on the low (2027), easily over the 50 day MA (2014 EMA, 2008 SMA). The action was not the best, but NASDAQ bounced and held its pattern, the current 14 week base that is trying to set up a reverse head and shoulders and a breakout over 2080.
S&P 500/NYSE
Volume jumped as the large caps gave back a good chunk of the session gains but holding up well as it sits over the short term and 50 day MA.
Stats: +2.62 points (+0.23%) to close at 1138.15
NYSE Volume: 1.518B (+17.66%). Volume rallied as the index gave back the session gains, but the index managed to hold positive and thus no technical distribution. Never good to give back gains on volume, but the reversal volume was significantly lower than last week's accumulation session.
Up Volume: 767M (+317M)
Down Volume: 728M (-83M)
A/D and Hi/Lo: Advancers led 1.26 to 1. The A/D line was flipping back and forth most of the session. The curious result is that it was negative early and then as the market sold late it pulled out a modest victory. The selling was not too virulent; we want it to stay that way.
Previous Session: Decliners led 1.7 to 1
New Highs: 145 (+14)
New Lows: 187 (-33)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Gave back 12 points as SP500 once again could not take out some resistance that is starting at 1150. It peeled back on rising volume but managed to easily hold over the 10 and 18 day EMA (1134, 1132), and easily over the 50 day EMA (1129). SP500 continues its 14 week base as well. It is not deep, but it is doing the work as it grinds through a month of little movement.
DJ30
The blue chips continue to find resistance at 10,500, rallying Tuesday but giving back 64 points from the high (10,537) but managing to hold onto a modest gain as volume moved back up to average. As with the other indexes, it has spent April working basically laterally, unable to make headway. Not a great pattern, but it is performing the same slow grind as the other indexes that is attempting to set up the next move.
Stats: +33.43 points (+0.32%) to close at 10478.16
Volume: 213 million Tuesday versus 183 million Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
No scheduled economic reports, but earnings and Fed speak continue in the line up. And of course there is still the ongoing escalation of activity in Iraq that will most likely get worse before it gets better.
That action will tend to keep the market on eggshells so to speak as the 'wear them out' base continues. The base works on investors and stocks as we see a few more solid stocks get roughed up here and there as investors get anxious and are faster and faster to pull the trigger. We have to keep the bigger picture in mind, and stocks that are holding up at support during this process are the stocks that will be in solid shape when the base concludes. Even with the mostly lateral action in the market, stocks are individually becoming more volatile as investors become more nervous. That is causing some solid stocks to crack under the strain. We typically give them a day or two to stop the bleeding and rebound. If they cannot we will shut them down.
We continue to see many stocks that have the potential to make breakouts or resume breakout moves. Because we do not control the starting gate for the next break higher, and because leaders tend to take off ahead of the rest of the market, we have to stay ready to move into the stocks that show continued or new leadership. The time is approaching, though we still believe it about two weeks away, near that April employment report to be released in 2 Fridays. A continued lateral move in the interim with some good price/volume action would definitely set the market up for an upside move on a good jobs report. We are still looking at the market and will know more when that date approaches, but the question we are working on is whether the market will view a strong jobs report as positive as that will move the Fed a step (or two or three) closer to embarking on its rate hiking campaign.
Support and Resistance
NASDAQ: Closed at 2032.53
Resistance: 2050 represents some prior price points and has stopped NASDAQ the last three sessions. 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 (2008). 1990 to 2000, the top of the late 2003 base. Some prices from the March consolidation attempt (1943). The 200 day MA (1930). Mixed tops and bottoms at 1900. The March low (1896).
S&P 500: Closed at 1138.11
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 (1129) and the simple 50 day MA (1132). 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 10,478.16
Resistance: 10,570 is the April high. Price consolidation at 10,600 level. September/November up trendline (10,710). 10,747 is the February high.
Support: The exponential 50 day MA (10,399) and simple 50 day MA (10,420). 10,000 to 9900-9850. The 200 day SMA (9956). 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): 92.9 actual, 88.5 expected, 88.5 March (revised from 88.3).
Existing home sales, March (10:00): +5.6% (6.48M) actual, 6.2M expected, 6.13M February (revised from 6.12M).
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
End part 1 of 2
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