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9/15/04 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: None issued
Buy alerts issued: AMMD; MXIM
Trailing stops issued: AVN
Stop alerts issued: ATRM
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 struggle for a second day as volume creeps higher.
- Manufacturing data shows continued modest expansion while New York region jumps.
- Jobless claims versus monthly job creation.
- Leaders in the recent rebound take the hardest hits.
Recent upside leaders show strongest losses Wednesday.
Stocks started soft for the second session and went down from there. SOX and NASDAQ were the early downside losers, but the large caps were there as well with Dow component KO warning. KO was just one of another handful of the now daily warnings; CLS, TRB, and XLNX all lowered expectations. In addition to the warnings there was lackluster economic data again as industrial production and capacity utilization eased while business inventories rose. When crude oil spiked higher on reports of seriously lower US inventories, the market pretty much had enough.
A soft opening turned even weaker on that news. Stocks trended lower all morning before finding some firm footing at the next support levels. They bounced and recovered half of the losses, but in the end they faded back toward session lows. Volume edged higher as they did, showing some distribution in the process. Most disturbing was SOX as it led the downside move with a 3.2% thumping. It held the 18 day EMA on the close, a key level after the initial failure at the 50 day. If it breaks below the 18 day, the odds of the chip downtrend resuming increase.
Not a great session for the market though hardly a breakdown. Most leaders simply pulled back to near support or closed well above near support. SOX and NASDAQ are below key resistance, but much of the market is still simply taking a breather. Those two key indexes, however, led the most recent charge higher, and if they break back down the rally is in jeopardy. In short, holding for now but two important indexes again dancing on the edge.
THE ECONOMY
July and August manufacturing data still mediocre, but New York trying to ramp up.
More of what we already now was reported Wednesday: manufacturing and business in general in July and August was mediocre, showing a modest expansion continues. Industrial production rose 0.1%, much lower than the 0.5% anticipated and the 0.6% in July. Capacity utilization held at 77.3, on par with July's revised reading (73.1 previous). Again, mediocre performance as the economy slogged through the summer. That, of course, is something we already know.
The Empire State PMI was much more upbeat. After thudding lower in September, expectations were not very upbeat. Activity rose to 28.3, however, much better than the 20 expected and the 12.6 previously reported (revised to 13.2 in this report). Problem is, the New York survey has been wildly volatile the past three months. It is thus hard to attach a lot of weight to the report, and it is clear the market did not. If the Philly Fed on Thursday and the Chicago PMI confirm this uptick, then Greenspan's admonition that the so-called soft patch is ending may hold some water. We would still need to see the trend improve, however, before comfortably reporting business was back on.
Oil inventories plunge.
Mid-morning US oil supplies were released, and the -7.1M bbl was a shocker given a 1.4M bbl drop was expected. Oil jumped on the news, but by the close it was again negative. Oil is still on eggshells given Iraq and Ivan (and possibly Jeanne). Even an additional 1M bbl/day production increase from OPEC did not placate the market though that additional production offsets the 1M bbl/day lost with the Gulf production shut down ahead of Ivan. With Ivan bearing down on refinery row, supply is not the real issue; oil could be knee deep, but without the refining capacity to make it useable, it does not matter.
Just another day in the world of oil when you have a major supplier that can go offline at any time due to terrorism, surging consumption in emerging economies, limited refining capacity, and mother nature throwing fastballs at the offshore production facilities. Sure oil is rising again, but it is not at the feverish pitch as back in mid-August when it ran right up to $50/bbl. Can you imagine what price oil would be now if that same environment existed now? Oil is holding up on new worries, but when they subside, oil will move back toward the thirties.
THE MARKET
If Tuesday was an 'even' session, Wednesday definitely tilted negative. Volume rose on NYSE, NASDAQ and DJ30. NASDAQ turned back from the 2004 down trendline, SOX dumped back down from the 50 day EMA, and DJ30 broke back below the 200 day SMA. Not a banner day, but not a breakdown. The indexes are still within a 'normal' pullback range on the last bounce. NASDAQ has filled the gap from Monday, SP500 is holding over the 10 day EMA and the 2004 down trendline. They can bounce here and still keep this renewal of the rally alive. Of course, they have to bounce.
Market Sentiment
Volatility received a jolt with Wednesdays selling as VIX jumped back over 14 on the market selling. The 7 sessions spent at 14 are a definite warning flag. Now volatility is starting up. How SOX and NASDAQ react at near support combined with this will tell us the direction.
VIX: 14.64; +1.08
VXN: 20.3; +0.81
VXO: 14.77; +1.22
Put/Call Ratio (CBOE): 0.94; +0.01
NASDAQ
Turned down from the 2004 down trendline with more vigor, filling the gap from Monday, but selling on some rising, once again above average volume.
Stats: -18.88 points (-0.99%) to close at 1896.52
Volume: 1.602B (+3.95%). No volume spike, but a definite increase in trade as NASDAQ started its selling after tapping the down trendline. SOX was definitely under pressure as chips sold on some more earnings warnings. We note that the downside volume Wednesday was lighter than the strong volume during last week's jump higher that resumed NASDAQ's rally. Thus the selling was not as intense as the rally returned.
Up Volume: 443M (-377M)
Down Volume: 1.146B (+455M)
A/D and Hi/Lo: Decliners led 1.61 to 1. No across the market drop.
Previous Session: Decliners led 1.14 to 1
New Highs: 58 (-17)
New Lows: 28 (+2)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Techs are in the pullback mode after a strong surge last week jumpstarted the rally once more. NASDAQ fully filled the gap from Monday t 1894, something it was bound to do after stalling at the down trendline. Now the issue is whether filling the gap is enough. Looks as if a 50 day EMA (1874) is more likely. That takes it down to the top of the late August/early September lateral range, a good enough support level to rebound. That also gives it more room to fade without really breaking down. If volume continues to rise, however, we are not going to wait around for the bounce with most of our positions.
NASDAQ 100 dropped 1.3%, pacing the overall NASDAQ's loss. After tapping at the 200 day SMA Monday and Tuesday, it is heading back toward 1400 on rising trade.
SOX had a tough session with more warnings before the open and then a 3.2% loss. It closed at the 18 day EMA (379). Key level for it and NASDAQ. If SOX breaks below AND cannot recover, it is back in the downtrend. That is not good for NASDAQ in general, though as we have seen, NASDAQ can rally without SOX participating. It is hard, however, for NASDAQ to make serious headway, i.e. a breakout, without SOX at least holding its own.
S&P 500/NYSE
Turned lower and back toward the down trendline on a modest bump higher in volume. Still sitting easily over the down trendline and the 200 day SMA.
Stats: +0.03 points (0%) to close at 1120.37
NYSE Volume: 1.253B (+4.44%). Volume rallied on the selling, but was still below average. That is significant because the gains leading up to this selling were on better trade. That means the Wednesday selling, while show some more sellers than buyers on Tuesday, were still fewer than the buyers during the past weeks move higher.
Up Volume: 333M (-294M)
Down Volume: 903M (+342M)
A/D and Hi/Lo: Decliners led 1.46 to 1. Small caps outpaced the large caps, helping the breadth.
Previous Session: Decliners led 1.05 to 1
New Highs: 91 (-14)
New Lows: 13 (-1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Large caps turned down at resistance in the 1125 to 1130 range, selling back toward the down trendline and 10 day EMA (1118) as volume kicked up. A test of the trendline or even the 200 day SMA (1115) is well within the purview of this pullback if the volume continues to rise. That, however, pushes it back into the lateral range that formed early this month. That is not a major breakdown by any stretch. If volume continues and it breaches the 200 day SMA on the close, well, that is an important move, particularly if coupled with a SOX breakdown.
Small caps fared relatively well Wednesday as they again sold back. After a very nice surge this month that continued the August rally it is making a normal pullback. It is still well above the 10 day EMA (285.80), leaving it plenty of room to pull back and remain in a solid test.
DJ30
The blue chips were going to struggle from the open with KO's warning. Volume jumped as DJ30 sold through the 200 day SMA (10,285). The higher volume was attributable to massive turnover in KO; take out the KO trade and volume was lower. The blue chips landed on the 18 day EMA (10,222). All in all not a devastating move, but it dropped DJ30 out of the nice little lateral consolidation that has formed the past two weeks. Volume was up the past two weeks as it made that move after the August rally. That suggests just a bit of churning, i.e. high volume turnover after a move upside. 10,200 marks the early August peak; that makes the current level the best place for the index to hold if it is going to make a stand and resume the upside move.
Stats: -86.8 points (-0.84%) to close at 10231.36
Volume: 203 million shares Wednesday versus 186 million shares Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
More economic data due out Thursday with consumer prices, weekly jobless claims, and the Philly Fed manufacturing report. We were looking forward to the jobless claims to see how they smoothed out the prior two weeks, but with Ivan coming for several days and evacuations ahead of that, the data may still be skewed.
Prices will be interesting with gasoline prices falling during the month. Producer prices are showing the Fed really does not need to raise rates. Or, if it does raise rates, it needs to make sure money supply remains flush. The economy is no barn burner. The bond yield curve has flattened a bit, indicating growth is less robust. The ECRI leading indicators show continued growth, but slower growth. As we have heard from the Fed the past week, it is softening its stance about inflation despite its affirmation the economy has found traction. The Fed is backing off of its rate hiking schedule based on a perceived lessened inflation threat.
Hey, whatever the reason we don't care. The economy does not need rate hikes right now, and indeed, the market has responded favorably. Indeed, while we have been looking for another deeper pullback to set the end of the base, this view that the Fed may be done with rate hikes is just the medicine that can break the market out of this 9 month base just as similar news did in 1984 and 1994.
That is why we are still looking for upside opportunity as the market makes this pullback. Leaders will hold support and prepare for the next rebound, showing their strength as the rest of the market sinks lower. Now if SOX breaks below the 18 day EMA and cannot recover, that is a drag on NASDAQ. NASDAQ, however, still has room to the downside and can still find support over those resistance levels it mowed through on the way up. Volume remains the key; it was up Wednesday, not a good characteristic. If it continues along with a SOX breakdown, there is risk of a deeper test. Indeed, this is pretty much the stage set that we have discussed since this rally began. The wildcard remains the Fed-speak about no longer being that worried about inflation.
Support and Resistance
NASDAQ: Closed at 1896.52
Resistance:
The 2004 down trendline at 1916
The 200 day SMA at 1968
Support:
1894 is the gap up point this week.
The 50 day EMA at 1874
The 18 day EMA at 1867
The 50 day SMA 1860
The October 2002/March 2003 up trendline at 1854
July 2003 highs at 1755
S&P 500: Closed at 1120.37
Resistance:
1125 was key price support and has been acting as resistance
1130 is proving to be some resistance.
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:
The March/April down trendline at 1118
The 200 day SMA at 1115
The 18 day EMA at 1112
The 50 day EMA at 1106
1096 to 1100 represent price support.
May low at 1084 (closing) to 1076 (intraday).
1080 (May and July lows).
1062 - 1058 from November 2003
Dow: Closed at 10,231.36
Resistance:
The 200 day SMA at 10,285
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:
The 18 day EMA at 10,222
The 50 day EMA at 10,172
9783 to 9793, the August lows.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
September 13
Treasury Budget, August (2:00): -$41.1 actual versus -$40.0B expected and -$76.6B prior
September 14
Current Account, Q2 (8:30): -$166.2 actual versus -$158.6B expected and -$147.2B prior (revised from -$144.9B)
Retail Sales, August (8:30): -0.3% actual versus -0.1% expected and 0,8% prior (revised from 0.7%)
Retail Sales ex-auto, August (8:30): 0.2% actual versus 0.2% expected and 0.3% prior (revised from 0.2%)
September 15
Business Inventories, July (8:30): 0.9% actual versus 0.8% expected and 1.1% prior (revised from 0.9%)
NY Empire State Index, September (8:30): 28.3 actual versus 20.0 expected and 13.2 prior (revised from 12.6)
Industrial Production, August (9:15): 0.1% actual versus 0.5% expected and 0.6% prior (revised from 0.4%)
Capacity Utilization, August (9:15): 77.3% actual versus 77.4% expected and 77.3% prior (revised from 77.1%)
September 16
CPI, August (8:30): 0.2% expected and -0.1% prior
Core CPI, August (8:30): 0.2% expected and 0.1% prior
Initial Claims, 09/11 (8:30): 343K expected and 319K prior
Philadelphia Fed, September (12:00): 25.0 expected and 28.5 prior
September 17
Michigan Sentiment-Preliminary., September (9:45): 96.7 expected and 95.9 prior
End part 1 of 3
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