|
|
* * * *
8/11/04 Technical Traders Report
* * *
Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: OVTI
Buy alerts issued: MDCC
Trailing stops issued: POSS; OSK; XL
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:
- Bad news sparks further sell off, but NASDAQ holds next support and market rebounds.
- Oil rides the rollercoaster again on various news stories, and stocks are still on its leash.
- Stocks overcome bad news and rebound, prompting calls of a bottom. Easy boys and girls.
- July retail sales to be a big number for stocks.
Stocks show some backbone, reverse after bad news.
As if Cisco's lackluster guidance was not enough, NSM and KLIC (semiconductors) had to lower their revenue expectations as well. That had futures diving, ready to wipe out Tuesday's gain in one downward swoop. That is basically what happened as stocks of all shapes and sizes fell on the open. To put it into perspective, NASDAQ breadth was -6:1 shortly after the open.
Despite the carnage, this was the move we were looking for over the weekend, i.e., where stocks continued lower to a point where they were oversold enough to put on a decent relief move. By decent we mean more than a session and one-half as has been the case during most of the more intense selling that started in July when stocks tried to come up for air but had the short term moving averages slam the door.
Wednesday was a bit different. The put/call ratio had already topped 1.0 twice on recent closes. Selling was extremely broad during the downdraft. Selling volume was high. Stocks reversed and volume remained high. Stocks overcame some bad news in order to rally. Stocks held the gains into the close. And of course, NASDAQ hit our anticipated reversal support level. That last point was gratuitous, but the idea is the same: a confluence of indications that perhaps this reversal has more in it than a day and one-half of upside. It still has to show us it has some legs starting next week with a continued move, but it was a good start.
What are we looking for? A rebound that lasts a two to three, maybe four weeks, that takes stocks into September. Something along the lines of the late March or the mid-May to July run that coaxes the crowd back in just to dash downward for another screaming fall in late September or early October to really set a good bottom.
A lot of this depends upon oil, the election, terrorism, and any of the other elements still hanging over the world and the economy. The market has put in enough time and enough selling to make a bottom. The question is whether it can do it successfully in the climate of uncertainty caused by all of the outstanding issues. On that point remember this: the market always starts its move before clarity is reached with respect to those issues causing the uncertainty. In other words, the market bottoms and makes its move before any of us feel comfortable about the future. That is why we have to watch the market for those important indications that show a firm bottom has been hit. Right now the clock starts again on another rally attempt.
THE ECONOMY
From Russia with love, US inventories, Middle Eastern surplus.
The Yukos daytime drama continues, but unfortunately it is costing us all more as it helps keep the uncertainty premium high for every barrel of oil. First Yukos says it has to shut down production due to government orders. Oil spikes. Then the government says that is not the case. Oil fades. Yukos says it cannot use any funds to produce or ship its oil. Prices spike. A judicial subordinate says Yukos can use its money and accounts receivable to produce and ship oil. Prices fade. The judicial minister reversed that decision.
The story has gone on and on. Wednesday oil was under pressure from a story that Yukos had received a default notice on $1.6B of debt. That along with a weekly report that US inventories were lower pushed prices higher. Then Saudi came out and said it had an extra 1.3 million bbl/day capacity it was ready to make available. That reversed a statement from a Saudi subordinate last week that Saudi had no more capacity. Wednesday's statement helped moderate a rise in prices the Russian news had started.
At days end the Saudi oil minister said that it had the cushion and was going to make it available as always. He was quick to point out, however, that supply was not the issue. The problem is the premium placed on oil due to outside influences such as war, terror, and political intrigue in the 'new' Russia. He did not say that exactly, but that was his point.
What changes the picture?
This ongoing drama regarding oil prices is just one of the issues confronting the market, but it is a major one. $45/bbl oil, while not at record highs in real dollars, is at a point that, if sustained through yearend, puts the economy in another recession. Why? Because once 2004 is over, the stimulus from the remaining tax incentives is over. The economy will need lower energy costs to keep things expanding.
Is oil about to top? We see encouraging signs from some of the energy stocks as they come under pressure when you would think they would be rallying higher as oil rallies higher. Of course in the market, stocks top before the economic activity driving them tops. It is interesting to see several refiners selling off this week. Refining capacity is a real problem, yet these stocks are selling hard.
We have seen the energy stocks start to falter in the past only to rebound. We fully expect to see them capitulate a month or so, maybe more, before oil prices peak. Thus it remains to be seen if this last sell off in energy stocks sticks. If we see some lower lows and lower highs setting up, then we start looking for oil prices to start coming off their peaks. That may take getting through the republican convention and closer to the election to take some of that terror premium out of each barrel. Oil will need to lose most of the premium and get down into the mid-thirties in order to avoid a 2005 recession. That is one of if not the primary overriding issue stocks are dealing with during this long base.
THE MARKET
Ridiculous statement of the day: "We think Cisco is a buy at these prices." This after Cisco gave lukewarm guidance and gapped lower, losing over $2 on the session (-10%) on massive volume. In the process it broke below a key support level at 20, opening the door to next support down to 15.50. A major breakdown and who knows when Cisco will recover. To buy at these levels is to buy into a major uncertainty.
Trolling for a bottom.
We heard the words today, and we cringed at their utterance. 'Today looks like a bottom.' Looks can be deceiving. It may turn out to be a bottom, but today did not tell the story. That will come next week if there is a follow through session and we see some good moves from some good stocks. For a market weary of a long 7 month base, however, it is understandable to be looking for something to indicate a bottom is near. Thus you hear more and more statements that 'it is getting close' and the like. Those are gut reactions to the ongoing selling and then seeing a reversal off bad news Wednesday. The idea is right, it just needs some confirmation.
Confirmation has been quite hard to come by this year. A modest one in May set up a 5 to 6 week rally, but without a lot of leading stocks with strong sales and earnings gains, that move could not hold up. Wednesday it looked as if the market was ready for another try, reversing from selling on some bad news. If it can continue and show a follow through, the majority of stocks are in abysmal shape, overshadowed by heavy overhead supply, hardly ready to break to new highs, 52-week or otherwise.
That is a primary reason that we feel any rebound here is one that is part of a bigger bottoming picture, and that the lack of leadership will cause the move to fail and require a test of this low. From that point the timing will be better calendar-wise as well as with respect to some of the issues (terrorism ahead of the election, oil, the election itself) confronting stocks. That also gives stocks a rally higher to form the right side of their bases, then a pullback where the stronger stocks hold their own and form handles or other tests, not selling off as hard. Then they are set to lead on the next bounce.
Market Sentiment
VIX: 18.04; +0.57
VXN: 26.96; +0.44
VXO: 17.53; +0.63
Put/Call Ratio (CBOE): 0.89; -0.14
NASDAQ
Yanked lower by bad news, then cut its losses by half. Reversal? If anything, the start of a better rebound that still won't carry the market out of this base.
Stats: -26.28 points (-1.45%) to close at 1782.42
Volume: 1.803B (+21.32%). The volume was high on the selling and high on the reversal. No doubt the rebound was fueled by short covering, a typical volume surge after an index makes a new low. That is, however, how all rebounds start. Solid reversal volume is often a sign of a rebound attempt, and this was the best volume of the month.
Up Volume: 364M (-738M)
Down Volume: 1.428B (+1.067B)
A/D and Hi/Lo: Decliners led 1.72 to 1. Big recovery from -6:1 early.
Previous Session: Advancers led 2.53 to 1
New Highs: 15 (-1)
New Lows: 256 (+78)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ dove to the next support level at 1755 (1760 on the low) at the July 2003 highs. That provided the catalyst for a rebound and NASDAQ succeeded in cutting its losses on a strong, above average volume surge. Reversal? Maybe. This is the area we were looking for the index to hold and reverse to give us a higher bounce than recently experienced. All a part of the overall bottoming process. At this point the immediate resistance to an upside move is the gap down point from Friday (1821) and the October 2002/March 2003 up trendline (1820; 10 day EMA at 1822). It will have to get well past that to set up a meaningful move back down in September to set up the bottom. Near the 50 day EMA (1906) is a logical target at this point.
QQQ slightly undercut the August lows and then reversed on strong volume. Still closed negative, but a decent reversal move along with the overall NASDAQ. Still the same resistance at 34, but there is always that overhead resistance any time an index tries to mount a recovery. It is either strong enough or not. For now, a good start.
S&P 500/NYSE
Held over the August lows and rebounded on volume, almost posting a positive close.
Stats: -3.25 points (-0.3%) to close at 1075.79
NYSE Volume: 1.41B (+13.23%). Strong, above average volume on the reversal.
Up Volume: 499M (-553M)
Down Volume: 888M (+705M)
A/D and Hi/Lo: Decliners led 1.3 to 1
Previous Session: Advancers led 2.76 to 1
New Highs: 21 (-10)
New Lows: 88 (+41)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 fought hard, refusing to break below the August low (1062) and then rebounding to cut early losses. Big test for the large caps. They are below the 2004 base (1076 intraday, 1084 closing) and the gap down point at 1081. They have to break back into that base and then clear some serious resistance at 1100 and then the 200 day SMA (1108). That may be too much; maybe just meeting the 200 day SMA as a reasonable goal to set up the next test and a better bottom formation. It will either give us a follow through next week that makes the break back into the base, or it will fail and the selling will be on . . . again.
Ran down, ran up, finished flat. The small caps are still below key resistance at 270, the point acting as the neckline in its head and shoulders base. It needs to retake this level and put in a good move to 280 or better to break up the pattern and set up a better base to rebound from with the rest of the market.
DJ30
Similar action on the blue chips with the sell off that held the August low (9793) and then rebounding to just miss a positive close. Volume rose but remained below average. The blue chips are trying to lead the other indexes back into the prior base as it managed to recover and hold that level again (May lows at 9852, 9906). It will have to clear the notorious but not difficult level at 10,000, but the real test is around 10,250.
Stats: -6.35 points (-0.06%) to close at 9938.32
Volume: 183 million shares Wednesday versus 167 million shares Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
A barrage of economic data before the open highlighted by July retail sales. July jobs data was disappointing (though we believe it was understated and will be revised in August), so the focus on the consumer is being emphasized. They are expected to jump from June's negative reading (1.1% versus -1.1%). They should. Optimism, despite Robert Ruben's claims, is rallying. That helps offset the effects of higher energy prices, and we note that gasoline prices continue to slide during the height of the summer driving season. There was no boom in consumption, but consumption was decent. It needs to be for the market. It is looking at some decent regional PMI reports and it needs further assurance that the consumer is coming back.
The market needs to play out the week holding this reversal and retaking some lost ground. It does not have to surge higher or risk being labeled a failure. It needs to hold up and set up for another solid bounce higher next week on strong volume. The market has been carrying around fears about the future for weeks if not months, and its fears were confirmed Wednesday with Cisco, NSM and friends. Some of that fear has become fact, and the market was able to reverse the selling to varying degrees. That is often an indication that the selling has run its course for the time being: bad news cannot find enough new sellers to push stocks and the market lower and hold it lower.
That leaves us looking for the market to provide a better bounce this time around, but still not enough to finish the base and provide a breakout. Not enough leaders in place to lead at this stage. That does not mean it will happen of course, but the factors discussed above warrant being ready for this move.
This means no meaningful move until next week, at least as far as telling us if there is some longer term buyers moving in after the initial short covering. In anticipation we continue to look at stocks that have made breakouts and are testing those moves. Primary candidates in this type of market are stocks that have made strong breakouts, shake out the short term profit takers as the market sells off, then start back up on strong volume. These are the 'proven' breakouts. We are also looking at new breakouts as well, targeting those with the best bases and good accumulation.
As for the downside, we are going to keep flexible. Most stocks are still in ugly downtrends. A rebound will set many of them up at resistance once more. A more meaningful rebound will allow them to break through near resistance and test higher levels such as the 50 or 200 day SMA. Either way we will be ready to play them to the downside. We are more eagerly looking forward to a stronger rebound because it works toward ending the long base and it also gives us a really good launch pad for a breakneck move to the downside. We have enjoyed some nice 50%, 70%, 100%, and 125% gains on our option plays on this last downside move. On a cathartic tumble to set up a bottom to this long base, the gains should be even more stellar.
Support and Resistance
NASDAQ: Closed at 1782.42
Resistance:
The October 2002/March 2003 up trendline at 1820
Gap down point at 1822.
The 10 day EMA at 1822
The 18 day EMA at 1849 is going to be strong resistance.
The May 2004 lows (1876 closing, 1865 intraday) may prove to be some resistance.
The 50 day EMA at 1906 is key resistance.
The 2004 down trendline at 1948
The 200 day SMA at 1978
Support:
July 2003 highs at 1755.
1750
June high at 1677.
S&P 500: Closed at 1075.79
Resistance:
May low at 1084 (closing) to 1076 (intraday).
The 10 day EMA at 1083
The 18 day EMA at 1090
1096 to 1100.
The 200 day SMA at 1109
1125 was key price support.
The March/April down trendline at 1123
1142-1146 are the June highs.
The April and January highs (1150 to 1155).
1159 (February highs) and 1160 to 1175 the highs in that double top that spanned late 2001, early 2002.
Support:
1062 - 1058 from November 2003
1048-1040 from September 2003
1010 - 1015 from June/July 2003
Dow: Closed at 9938.32
Resistance:
The 10 day EMA at 9981.
10,000 is the March lows and a psychological level.
The 18 day EMA at 10,035 is a first test.
The 50 day EMA at 10,146.
The February/April down trendline at 10,150
The 200 day SMA at 10,237 is going to be key.
Late April, June peaks at 10,478 to 10,512
10,570 is the early April high
Price consolidation at 10,600 level
10,747 is the February high
Support:
May low at 9852 intraday, 9906 closing; November 2003 highs: 9900 intraday, 9858 closing.
9625 - 9660 from September 2003.
9500 from various price points in late summer to fall 2003.
9250. More solid support from the June through August 2003 consolidation.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
August 9
Wholesale Inventories, June (10:00): 1.1% actual versus 0.6% expected and 1.4% prior (revised from 1.2%)
August 10
Productivity-Preliminary, Q2 (8:30): 2.9% actual versus 2.0% expected and 3.7% prior (revised from 3.8%)
FOMC Meeting (2:15): Raised rates to 1.50, a 25 basis point increase.
August 11
Treasury Budget, July (2:00): -69.2B actual versus -$60.5B expected and -$54.2B prior
August 12
Business Inventories, June (8:30): 0.6% expected and 0.4% prior
Export Prices ex-agriculture., July (8:30): -0.1% prior
Import Prices ex-oil, July (8:30): 0.0% prior
Initial Claims, 08/07 (8:30): 340K expected and 336K prior
Retail Sales, July (8:30): 1.1% expected and -1.1% prior
Retail Sales ex-auto, July (8:30): 0.4% expected and -0.2% prior
August 13
Trade Balance, June (8:30): -$47.0B expected and -$46.0B prior
PPI, July (8:30): 0.2% expected and -0.3% prior
Core PPI, July (8:30): 0.1% expected and 0.2% prior
Michigan Sentiment-Prel., August (9:45): 97.5 expected and 96.7 prior
End part 1 of 3
|
|
