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world stock market, us stock market
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5/18/04 Technical Traders Report Update
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Technical Traders Report Subscribers:
Full reports issue Monday, Wednesday and Saturday. Tuesday and Thursday a market summary is issued along with some solid plays for the next session.
MARKET ALERTS
Targets hit alerts issued Tuesday: None issued
Buy alerts issued: BLUD (bonus alert)
Trailing stops issued: SKIL
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:
- Market rebounds, volume does not.
- Greenspan re-upped by Bush to avoid election year turmoil.
- Earnings remain solid but continue to provide no traction as market cannot generate buyside volume.
Hanging on with a low volume bounce.
NASDAQ is gapping up and down this month, bouncing around like a pinball. Low volume accompanies most of the moves, and that is a sign of a weak market that is being yanked around by the story of the day. Monday it was assassination, economically weaker Japan, Indian market meltdown. Time to gap lower. Tuesday it was lack of assassination, economically stronger Japan, Indian market rally. Time to gap higher. The market is dazed and confused, and the low volume allows a handful of hedge and mutual funds on either side of the market to push it around.
Dazed and confused is not really accurate. More in hibernation while the big near term uncertainties are resolved such as Iraq, the peaking of oil prices (the two may be somewhat tied together), what the Fed is going to do re inflation and rate hikes. You hear many of the financial shows discussing the economy and earnings and how stocks are not taking them into account. You hear some indignation from a few hosts about what the heck is going on. What is going on is that the economic growth and earnings are not news to the market. The market spent all of 1993 building that in. There were huge doubts about the economy when the market bottomed in October 2002. There were huge doubts when it started the 2003 rally. Over the course of the rally the fear of deflation dissipated and turned to a fear of inflation as the economic recovery became a certainty, a certainty the market saw coming and had already priced in.
Thus this correction in the face of good economic data and earnings is the market digesting the 2003 gains, getting multiples lower, awaiting the resolution of these near term problems (it will move before it is apparent they are resolved), and then looking to see if there will be continued growth to anticipate post-Fed. Earnings are old news in an expanding economy. The key to the market is whether they will continue to grow, and that depends upon its view of the economy with an active Fed following the resolution of these short term issues. Again, the market will decide these before they are apparent to us. That is why we look to the market to tell us if there are buyers building positions and then jumping in heavy. It will predict the results before they become apparent. To curse the market right now is the same as cursing the dark. Corrections come just as does nighttime. The market shows us the dawn is coming when it starts to rally on volume. It simply is not showing any dawn yet.
What do we mean? Another low volume bounce that could not push past near resistance following a gap lower Tuesday that basically killed off the prior Wednesday's reversal session. Better news from overseas did not bring buyers in, it just kept the sellers quiet. Overall volume remains light on both sides of the ledger, an overlooked positive. With SP500 hanging on above the 200 day SMA, the lack of selling volume is good. It has to make something of it as opposed to continually testing the 200 day as discussed Monday night, but for now it is still keeping a positive look in the face of near term downtrends in NASDAQ and SOX.
THE ECONOMY
Greenspan gets another nod.
Whether you wanted it or not, the re-nomination of Greenspan was foregone. In a tight campaign year with the incumbent basically fighting his shadow and yet still managing to struggle, it was a no brainer that the boat would not be rocked with this appointment. If he changed there would be criticism that he got rid of a steady hand. As it is there will still be carping that Greenspan should be gone after 17 years as chairman. People who should know better were carping about the move.
We said months ago that Greenspan would be reappointed for this very reason. We also said he will take the appointment, stay through the election or the inauguration, then step down. This is all pre-arranged from what we hear. Greenspan has another chapter to his book about how he steered the economy once more through troubled times and into another green meadow of economic prosperity. He does not want to hang around to be saddled with another black mark if the Fed goes too far once again in the rate hikes it is going to start in the near future. So, Greenspan nominated, accepts, stays through early 2005 at the latest, then hands it over to McTeer, Ferguson or even someone from outside.
Housing fades but still strong.
April housing starts fell 2.1% to 1.969 million annualized units, just below the 1.98 million expected. March was revised higher to 2.01 million from 2 million. Permits were up 1.2% to 1.999 million annualized. March was revised higher as well. The housing market continues to post good results though showing definite slowing as you would expect as rates rise. Rates are still historically very low, however, and that continues to drive the market.
Housing stocks, on the other hand, have peaked for now and are trending lower. Many have broken the 200 day SMA, a critical level for a stock. That is a major support area where the big money institutions either buy into their favorite stocks and support them OR they have soured on them and let them slide if they have already sold. If they have not sold but decide to do so at the 200 day, volume spikes up as they dump their shares. They are getting rid of what they have left. That is often the death of a stock and requires more selling and then some serious basing before it ever gets back into shape to own.
THE MARKET
Hanging on with low volume.
Volume was again lacking on an upside session, but it has also been rather meek on the recent down sessions as well. After some distribution to end April and a bit more in early May, then some strong reversal volume, trade has dried up. During that time the 200 day SMA on SP500 has been tested again, and a modest bounce has resulted. As noted, this is not necessarily bad news. Not great news as no buying has surged in, but not bad news as there has been no volume breakdown. Given the continuing near term uncertainties confronting the market as outlined above, this might be the best an upside investor can hope for: hanging on above support as the market digests the remainder of the gain and the near term questions.
NASDAQ, DJ30 and SOX have all broken the recent lows, and that puts them in near term downtrends that Tuesday's light volume bounce could not break out of. Indeed NASDAQ tapped at near support early and retreated for the rest of the session. SOX tapped the 10 day EMA on the high and faded some. In short, low volume was not able to punch through the support it just fell through. If it fails here it becomes more serious resistance. The low volume means no buyers and not many sellers, but these indexes are trending lower. Until something resolves the current issues, the trend will most likely stay in place.
Foreign sales of US equities.
Foreigners are selling U.S. equities to the tune of $13.45B in April, the highest since 1978 when the data was first compiled. For comparison, in March $2.45B was put into US equities. While some are quick to point out an issue or two, the selling is based on a broad range of factors, not the least of which is a world economic improvement where other economies are providing good growth opportunities. You can blame potential inflation, a soon to begin Fed rate hiking campaign, a high US current account deficit, stronger returns in fixed income investments, US deficits, high consumer debt burdens, higher energy costs, etc. Some like to focus specific items in that list and conclude that there is a major problem ahead. To do so ignores all of the other factors, and we note the selling did not start until they all came together.
Is there reason for alarm? Well, if foreigners continue to dump equities to such an extent that they disinvest in the US, that could be a problem. If they stopped buying Treasuries in addition to being net sellers of equities, that would be a real problem. What is going on is that there are other opportunities in the world aside from the US, the only game in town the past 15 years. World investors are diversifying as they see other growth opportunities. They are also buying Treasuries now that rates are moving higher, making them more attractive yield-wise. If inflation shoots higher they lose some of that luster, but for now there is a lot of talk about inflation, but it is still at very low historical rates. Right now the selling is putting some additional pressure on US equities that are already under pressure. It is another factor adding to the market's malaise, but as noted, it has not broken down yet and is still trying to make a stand.
Market Sentiment
Continue to show some fairly extreme levels but also has yet to deliver a meaningful rebound in the face of the uncertainties facing the market.
VIX: 19.33; -0.63
VXN: 27.75; -1.44
VXO: 19.82; -1.21
Put/Call Ratio (CBOE): 0.99; -0.23. Backed off of a close over 1.0 but still very strong.
NASDAQ
Gapped higher after the Monday gap lower. Volume fell as NASDAQ could not punch through minor resistance at 1900.
Stats: +21.18 points (+1.13%) to close at 1897.82
Volume: 1.445B (-5.67%). Extremely low volume, the lowest of the month. Obviously no accumulation, but again, no major distribution in the month (2 sessions, one a reversal attempt).
Up Volume: 1.107B (+907M)
Down Volume: 327M (-991M)
A/D and Hi/Lo: Advancers led 1.76 to 1
Previous Session: Decliners led 3.23 to 1
New Highs: 31 (+12). A subscriber notes another indication in addition to the sentiment indicators that show some firming. The NASDAQ high/low differential did not break last week's low even as the overall index did. The NYSE high/low differential did not approach the prior week's negative number even as the NYSE came close to breaking the low. That is a sign of underlying strengthening at this level.
New Lows: 74 (-65)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ answered the Monday gap lower with a gap higher. It broke over near resistance at 1900 briefly and then turned back. Volume was low, so there was no buying, just a lack of selling. NASDAQ remains below the March lows and below the 10 and 18 day EMA (1917, 1937), the move below the recent lows confirming a near term downtrend. It will need more volume to break these resistance levels up to 1950.
The QQQ (pint-sized NASDAQ 100) is still holding above the march lows, another help to the tech sector as the large cap techs hold up a bit better than the overall tech index. As with the SP500, it still can form a double bottom here and deliver to the upside. Overall it still has to overcome the near term questions as does the rest of the market before it can make the move, but the large caps are in position if the catalyst comes along.
S&P 500/NYSE
Still holding above the 200 day SMA with a modest, low volume bounce Tuesday.
Stats: +7.39 points (+0.68%) to close at 1091.49
NYSE Volume: 1.353B (-5.41%). Lower volume as it rebounded after some slightly higher volume selling. Thus sellers have the advantage, but it is slight overall as the volume has stated to dry up after the reversal attempts last week. As noted, that is not a bad thing given the hold over key support on solid reversal sessions. In short, in the absence of upside volume, it is the next best thing.
Up Volume: 1.018B (+813M)
Down Volume: 317M (-887M)
A/D and Hi/Lo: Advancers led 2.61 to 1
Previous Session: Decliners led 2.19 to 1
New Highs: 18 (+3)
New Lows: 61 (-46)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 is still hanging around near the 200 day SMA, and as noted Monday, that can lead to problems if it falters and returns to that level again. It did not fold up the rally attempt after a slightly higher volume selling session Monday, so it is still in position to rally. Again, it has to resolve for itself the uncertainty with the near term issues before it will rally. For now, holding at the 200 day SMA is about all you can ask until it does that. As such, the lower volume, while no indication of renewed health, is not as bad as typical; the market has already sold hard and now is sitting over support on overall lower trade. It can crack and fall if the news gets bad enough again, or it can rebound if it gets some great unexpected news or the selling just dies out. The index, as is the market, is weak and easily influenced by news. We are keeping a close eye on this one as the barometer for the rest of the market.
DJ30
Low volume rebound toward the 200 day SMA (10,029) and the psychological level at 10,000 after dumping lower Monday on rising trade. The blue chips are still well below the march low (10,007.49) and in that near term downtrend. With the 10 day EMA (10,057) coming down on top of the 200 day, it will be hard pressed without some very good news to make a move over those levels. HPQ beat the street handily after hours and was moving smartly higher. It may provide some help to the index, but of late it has not been hitting on all cylinders as some worked to take it down while others tried to buck it higher.
Stats: +61.6 points (+0.62%) to close at 9968.51
Volume: 192 million Tuesday versus 200 million Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
No scheduled economic reports Wednesday, but there were earnings after hours. AMAT beat the street on earnings and revenues and was up initially. When the conference call hit it gave back those gains. New orders were up 32% and the company projected continued strengthening. It did not say it, but indicated the expansion looked sustainable. Again, the stock was higher after hours but then gave that move back and then some. HPQ easily beat the street and rallied roughly 90 cents after hours, holding its gains.
Whether earnings can finally start to lead stocks higher remains to be seen, but given the continued uncertainty regarding Iraq (handover still 6 weeks away), inflation, rate hikes, oil prices and the like, it would be surprising to see it happen, particularly with NASDAQ and DJ30 just recently breaching the prior lows and in current near term downtrends. That indicates a further move lower in those indexes before they are ready for a sustained rally. As long as SP500 holds support (and QQQ holds March lows), however, a rebound is still possible. We keep watching for signs of a turn but note the near term trend remains down even as the longer term trend is still upside.
Support and Resistance
NASDAQ: Closed at 1897.82
Resistance: 1900 is potential resistance. The MA in such a move lower are always a resistance level. 10 day EMA (1917); 18 day EMA (1938); 200 day MA (1946). The April closing low at 1978. 1990 to 2000, the top of the late 2003 base. The simple 50 day MA (1975) and 50 day EMA (1974). 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.
Support: The April lows (1880, 1878) trying to hold. 1850 below that. Some price tops at 1777, 1750.
S&P 500: Closed at 1091.49
Resistance: The 10 day EMA (1098). 1096 to 1100. 1106 is a May 2002 top and represents some early 2001 lows. The 18 day EMA (1106). 1125 stalled the last bounce attempt. The exponential 50 day MA (1117) and the simple 50 day MA (1119). 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: April lows (1079, 1076). The 200 day SMA (1080). 1075 to 1070 from the December consolidation. 1058 - 1060 from November tops.
Dow: Closed at 9968.51
Resistance: The 200 day SMA (10,029). The 10 day EMA (10,057). The 18 day EMA (10,141) and 10,250. The exponential 50 day MA (10,271) and simple 50 day MA (10,278). 10,570 is the April high. Price consolidation at 10,600 level. 10,747 is the February high.
Support: 9900-9850. 9650; 9585.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
5-17-04
NY Empire State Index, May (8:30): 30.21 actual, 34.0 expected, 34.03 April (revised from 36.1)
5-18-04
Housing starts, April (8:30): 1.969M actual, 1.98M expected, 2.011M March (revised from 2.007M).
Permits, April, (8:30): 1.999M actual, 1.96M expected, 1.946M March (revised from 1.976M).
5-20-04
Initial jobless claims (8:30): 326K expected, 331K prior.
Leading economic indicators, April (10:00): 0.2% expected, 0.3% March.
Philly Fed Index, May (12:00): 31.0 expected, 32.5 April
End part 1 of 2
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world stock market
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