|
|
world stock market, us stock market
* * * *
5/04/04 Technical Traders Report Update
* * *
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 Tuesday: None issued
Buy alerts issued: PRGO
Trailing stops issued: None issued
Stop alerts issued: DUSA
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 wait on Fed, give the decision a lukewarm response.
- Factory orders surge, Fed to act but at a 'measured pace.'
- Market scratches out a second gain for the week but still an overall low volume rebound.
- Subscriber Questions
Fed decision gives market a boost, but no landslide rally.
The market traded higher and lower waiting on the Fed, moving back to flat right before the 2:15 ET announcement. As typical, volume was light, breadth was flat ahead of the decision. After the announcement of no rate hike and a 'measured' approach to future hikes the market jumped. Prices jumped, that is. Volume continued to lag even as stocks rallied.
It was not cut and dried, however. The Fed was clear that the economy was improving and that inflation was not a real problem yet, but exactly what the statement meant was open to discussion. Stocks showed this by then giving back the rally and just nosing out a gain on the close. NASDAQ volume was down, NYSE volume up. In fairness it is always hard to read the initial market action in response to an FOMC pronouncement. There is always a lot of pent up anticipation that is released, and the market rocks back and forth adjusting afterwards, typically taking a day or so to catch the trend it is going to take.
Basically stocks held on, continuing the modest lift off the recent lows, but not showing a lot of power, at least not enough to propel a double bottom breakout. Thus another milestone for the week is passed without much to show for it. There is still a ton of economic data ahead as well as the Fed focal point, the jobs report. There is a strong chance jobs will surprise to the high side once again and thus the Fed being perceived as behind the market curve once again. That could hurt stocks near term but might do wonders for setting up the bottom to the current 3.5 month consolidation.
THE ECONOMY
Factory orders surge in March.
The Fed said there were signs of a solid expansion, and the factory orders are more evidence, blowing away expectations at 4.3% versus 2.5%. That is the highest growth since July 2002. February was jumped fourfold (1.1% from 0.3%). Strong current month, strong revision. That is a clear indication of a solid trend strengthening further.
Excluding defense orders, new orders rose 4.6%. Inventory to shipment plunged to 1.23 from 1.27 as shipments jumped 3.8%, the largest increase since 1992 when shipments were first tracked. Durable goods orders rose 5%. Inventories were up just 0.3%, and that has to rise to meet demand. Manufacturing inventory levels are closely tied to manufacturing hiring levels, and thus expectations are for the manufacturing sector to show the first gain in manufacturing jobs in 40 months along the lines shown in the ISM released Monday.
Still, the overall trend in manufacturing the past 50 years has been a reduction in jobs. Jobs are replaced by automation and overseas labor. Outsourcing has always been a fact of life for the economy regardless of the era. The recent outcry is different only in that it has latched on to a new area involving white collar workers. That is also not entirely true. As oil and gas workers in the 1980's. A lot of white collar workers in the industry were 'outsourced' as it became cheaper to buy foreign oil that could be produced overseas and shipped to the US for a fraction of the cost of drilling domestically. Those workers lost their jobs by the US 'outsourcing' its oil demand to foreign countries where foreign workers located, drilled for, produced and shipped the oil. As each industry matures, its jobs are outsourced to lower cost areas because the growth simply is not present anymore. The only way to remain profitable and to continue a modest earnings growth is through efficiency. Outsourcing is an inevitable part of that, and without it there would be fewer older US companies still around.
Fed to remove accommodation policy at a 'measured' pace.
The Fed more or less met expectations, keeping its target federal funds rate at 1%. It also met expectations by removing the 'patient' language and instead saying the policy accommodation could be removed "at a pace that is likely to be measured." The Fed went further, saying though inflation had moved higher, long-term inflation appears 'well contained.' The upside and downside risks are balanced even with expansion at a 'solid rate' and hiring that has 'picked up.' Thus with 'inflation low and resource use slack' the Fed sees itself as having the ability to raise rates at that 'measured' pace.
The Fed recognized the expansion and job growth, said it would remove the accommodative rate level, but would do so (it hopes) at a slow pace. Problem is, the economy is really moving well, and there is fear that a delay in the start of 'measured' rate hikes means the Fed will have to raise more later in attempts to get the economy under control (if such a thing is ever really needed outside the perception of the Fed).
The market seems to think there is work to be done right now as the spread in treasuries has widened and commodities prices surged after the Fed announcement. The latter is important. As we reported over a month ago, there has been an obvious tremendous upswing in demand and price for raw materials. In the lumber industry, for example, producers of products are starting to stockpile the lumber they need for two reasons: protection from price hikes and from shortages. The commodities markets are showing us more hedging and more similar stockpiling as the market knows there is robust demand. The fear all markets are building in is two-fold: inflation because the Fed did not act fast enough, and protection against disruption if the Fed has to come in and really jump interest rates aggressively.
All of this, however, goes with what we have been saying about the Fed. First, it always reacts too late with too little, or it entirely misreads the economy and acts when it should not. This is more of the former. Second, the Fed is not interested in raising rates until it is certain that jobs show strong, consistent growth. The Fed is seriously worried about stepping in too early and choking off job creation. That is why it is being so cautious. It may be too cautious, but we also believe those fretting over inflation are being too reactive. After all, the rate hikes called for would still keep the fed funds rate below the nominal interest rate. Moreover, remember that interest rates are only the most visible of the Fed's tools. Money supply has contracted this year as the Fed controls what money and what type of money is in circulation. Indeed, money supply has shrunk for almost 9 months. The Fed could keep rates at 1% forever and still put a lid on the economic growth simply by restricting money supply. That, of course, would cause perception problems, so the Fed ends up moving the fed funds rate up and down in a somewhat ceremonial gesture.
THE MARKET
Another gain, this time on mixed volume, but choppy FOMC action not that strong.
Stocks did managed to post gains after the FOMC decision, but they also gave back a significant chunk of the rally on the heels of the announcement. Volatile action all session, exacerbated by the FOMC statement and the market's attempt to digest its implications. Indexes posted gains but closed well off their highs and on mixed volume. With SP500 closing 8 points off of its high, leaving a very modest gain. Overall stocks posted gains and you could argue there was some accumulation in small caps and some large caps, but it was modest and dwarfed by the recent distribution sessions. In short, though the water was muddied somewhat by the FOMC meeting, overall the session was another relief bounce from last week's selling. The indexes tried to run, but folded when they hit resistance, giving back most of the gains. Stocks may sift through the FOMC decision and decide they like what they saw, but at the end of Tuesday the rebound still did not look all that powerful.
Market Sentiment
Sentiment indicators took a noticeable turn toward complacency Tuesday as stocks posted very modest gains. While we would not expect to have to get to major market bottom levels to turn end this correction, the ease at which the budding fear indicators backed off is a concern that there are still too many holding on in wait for the next rebound.
VIX: 16.55; -0.07
VXN: 25.14; -0.58
VXO: 16.36; -0.27
Put/Call Ratio (CBOE): 0.67; -0.14
NASDAQ
Lower volume and falling well off the intraday high by the close. Not even a really great relief bounce at this point.
Stats: +11.76 points (+0.61%) to close at 1950.48
Volume: 1.866B (-7.79%). Volume dropped back below average for the first time in a week as tech stocks had no punch before or after the FOMC announcement. Low volume relief bounce is the only way to style the action on NASDAQ this week.
Up Volume: 1.226B (-41M)
Down Volume: 578M (-160M)
A/D and Hi/Lo: Advancers led 1.45 to 1. Ho-hum upside breadth.
Previous Session: Advancers led 1.22 to 1
New Highs: 56 (+5)
New Lows: 48 (-27)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ again held the 200 day SMA (1935) on the low, tapping and then rebounding from that key support level that held in March and is trying to hold now. It rallied close to the 10 day EMA (1976) on the session high but gave back almost 20 points to the close. Not a picture of strength in the rebound following the distribution last week. It is making a go of it, rebounding where ht has to, but there is no power behind the move that would indicate that a successful double bottom is setting up. Maybe it will mull the FOMC decision and decide to rally when the jobs numbers are released Friday. For now it is rather treacherous with this low volume bounce clinging to the foothold the 200 day SMA provides.
S&P 500/NYSE
Bounced on stronger, above average volume, but it found the 50 day EMA on the high and gave back most of the move.
Stats: +2.06 points (+0.18%) to close at 1119.55
NYSE Volume: 1.662B (+6.09%). Solid volume as large cap stocks put in their second advance off the distribution selling last week. Technically accumulation, but given the intraday price action where it gave back most of the gain, it is hard to classify the day as positive
Up Volume: 1.034B (+27M)
Down Volume: 605M (+68M)
A/D and Hi/Lo: Advancers led 1.36 to 1. As with NASDAQ, pretty poor breadth even with the small caps moving. Made it up to 2:1 intraday but faded with the selling.
Previous Session: Advancers led 1.52 to 1
New Highs: 63 (+31)
New Lows: 127 (+17)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Advanced but the move was volatile with a 15 point range, just managing to hold positive on the close. Volume rose but the price action was not great, so we are not putting a lot of weight on that action. On the high (1128) the large cap index tapped the 50 day SMA (1129), but it did not waste much time there. Still holding over the March low (1087 intraday) and above the weekly trendline from the February and March 2003 lows. It is in good position to rally, but it really needs a blowdown to the 200 day SMA (1075) or at least to undercut the March low. That would make it easier in a certain way as a reversal from there would be obvious. Right now it is trying to make a move off the trendline, showing some strength but most likely that strength is illusory at this point.
DJ30
Tried the 50 day SMA (10,384) on the high as the blue chips traded in a 120 point range, showing a big doji below that key level. Eked out a very small gain on rising though still below average volume, but even more so than on SP500, it is hard to call that gain accumulation. The pattern is still in trouble as it tries to hold over some support at 10,250 but is pushed from above by the collapsing 50 day MA. As with SP500, still looks as if it could use more of a correction with a drop down toward 10,000 and the 200 day SMA (9985).
Stats: +3.2 points (+0.03%) to close at 10317.2
Volume: 208 million Tuesday versus 199 million Monday
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
With the Fed out of the way the market starts looking toward the Friday jobs report and what it means for future stock prices. The market priced in an initial rate hike, but while the Fed provided something positive to trade upon, it was not much and barely held up at all by the close. There is still a shot that stocks could continue higher, but it would take a much greater change of character than shown this week.
Indeed, the next major news to move the market other than unanticipated world events is the jobs report. This is the first month we anticipated a real breakout in the jobs number; it started in March. The March success has bred more upside speculation despite the relatively tame 165K officially expected. Problem is, what the market will do with a strong number is less than clear. It did get what it wanted and a bit more with the Fed's 'measured' pace of rate hikes. As long as it buys into the Fed's ability to control potential inflation at a 'measured' pace without having to go on a rampage of rate hikes later, the market can start building in expectations of better earnings given a continued strong economic expansion. That, as we have previously discussed, is the rub. Shorter term the market can buy into anything; longer term there has to be some substance.
We feel Friday will be the litmus test for the market action, but ahead of that day the market has two sessions to muddle through. The Tuesday gains were tepid, the bounce for the week lacking punch. Stocks could be in a real struggle ahead of Friday. A sell off down to the SP500 200 day SMA would be steep and frightening, but it would set up an upside move on a stronger jobs report. Most likely, the market will not sell that hard at all, but will struggle through the sessions to Friday, then makes its move.
We have assumed a stronger jobs report. That is no lock. There are good signs of job creation, but the weekly claims have stalled a bit as well. We believe there are enough signals now to indicate continued job creation though mostly in the service sector and with some correspondingly lower wages. We will know more about how the market viewed the Fed's game plan Wednesday and Thursday and have a better idea of the market direction on the jobs report. For now, however, we reiterate that the market has only showed us a low volume rebound from last week's selling, with the indexes failing the first 50 day EMA test since breaking below them last week.
Support and Resistance
NASDAQ: Closed at 1950.48
Resistance: The 10 day EMA (1978) needs to be watched given the lower volume bounce. It is right at the April closing low at 1978 itself. 1990 to 2000, the top of the late 2003 base. The simple 50 day MA (1934) and 50 day EMA (2003). 2050 represents some prior price points and has stopped NASDAQ the last time it tried that level. 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 (1936) is still a key point that is trying to hold. Mixed tops and bottoms at 1900. The March low (1896). 1850 below that.
S&P 500: Closed at 1119.55
Resistance: 1118 is the April closing low and not totally broken. 1125 represents some price points. The exponential 50 day MA (1127) and the simple 50 day MA (1129). The April and January highs (1150 to 1155). Next is 1159 (February highs) and 1160 to 1175 the highs in that double top that spanned late 2001, early 2002.
Support: 1109, the weekly up trendline from the early 2003 lows. 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. The 200 day SMA (1074).
Dow: Closed at 10,317.20
Resistance: The exponential 50 day MA (10,380) and simple 50 day MA (10,384). 10,570 is the April high. Price consolidation at 10,600 level. 10,747 is the February high. September/November up trendline (10,770).
Support: 10,250 is trying to hold. 10,000 to 9900-9850. The 200 day SMA (9985). 9859-9855.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
5-03-04
Construction spending, March (10:00): 1.5% actual, 0.5% expected, 0.4% February (revised from -0.1%).
ISM, April (10:00): 62.4 actua, 62.7 expected, 62.5 March.
5-04-04
Factory orders, March (10:00): 4.3% actual, 2.4% expected, 1.1% February (revised from 0.3%).
FOMC meeting results (2:15): No change in the fed funds rate, no longer patient but will raise rates in a measured manner.
5-05-04
ISM services, April (10:00): 65.0 expected, 65.8 March.
5-06-04
Productivity, preliminary Q1 (8:30): 3.5% expected, 2.6% Q4
Initial jobless claims (8:30): 335K expected, 338K prior.
5-07-04
Non-farm payrolls, April (8:30): 165K expected, 308K March.
Unemployment rate, April (8:30): 5.7% expected, 5.7% March.
Hourly earnings, April (8:30): 0.2% expected, 0.1% March.
Average workweek: 33.8 expected, 33.7 March.
Wholesale inventories, March (10:00): 0.5% expected, 1.2% February.
SUBSCRIBER QUESTIONS
Q: Who is the "market"? The market as you say is expecting this or that. As a trader, I expect and think the market should be reacting far more positively to economic conditions. I think you feel the same way. So who are the "they" that seem to be so schizophrenic about entering and exiting the market. Is it some small group of mega investors that want to control the market for their own purposes? And if so, are there warring factions in this group?
Thanks again for your excellent and balanced commentary.
A: Market is a generic term we use to describe the major indexes in general, and more specifically the major investors that move the market. We use the term to describe the overall movement of the averages and the big money that is responsible for the major moves. It is not always an accurate characterization with respect to the indexes as some indexes can trade contrary to the majority of indexes in any given session. As for the big money investors, as they tend to leave footprints, it is more accurate.
Big money moves the market. when you have an index populated by multibillion dollar market cap stocks, the individual investor is not going to influence the moves. We simply don't have the money nor do we act in unison as would a mutual fund or two or three or more. For a small stock with a small float that is a different story. Again, for stocks on the large cap indexes, the market is the big money, and the big money is controlled by the mutual funds, insurance companies, and pension funds.
With over 7000 mutual funds with managers that like to invest contrary to the market trend, with the market trend, etc, and hedge funds that like to do both at the same time, the action can appear schizophrenic, particularly at times of change in the market where they flail around, trying to find something that works. That can give rise to the high volume volatility seen in January and then again in April. When we see this we know those that are bullish and those that are bearish are fighting it out toe to toe. Once they are finished the trend will emerge. While they are fighting, it gets ugly and the action can be all over the map. That is a time for caution for us little guys because if a few institutions take the same path that can move the market a bit, but that can be thrown back by even more institutions going the other way.
We still laugh at how the 'day traders' and individual investors were tagged as the cause of the market volatility in the late 1990's and early 2000. There is no way individuals had the clout to run huge market cap stocks up and down as occurred. Those were the big money institutions running around with hot pockets.
End part 1 of 2
|
world stock market
us stock market
|
