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money investment, investment help
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9/25/04 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Friday: None issued
Buy alerts issued: TDS; BBOX
Trailing stops issued: AGYS, AMSC
Stop alerts issued: TXN; SNDK
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 close out the week mostly quiet, but SOX is trouble.
- Durable goods post strong rise sans transportation.
- The 'costs' of tax cuts.
- SOX rolls over after leading last leg of rally, following largest caps lower.
- Protecting upside positions as market continues to weaken.
Stocks challenged again, fight to hold on, but losing ground.
Once more stocks were hit in the pre-earnings warnings season. CRUS and PHG from the semiconductor sector joined INTC, TXN, PMCS and other chips in an expanding list of companies that are not going to meet the original earnings expectations. Moreover, oil continued its climb back toward $50/bbl as investors anticipate more violence in Iraq ahead of US and Iraq elections. That combination sent Asia and Europe lower earlier, and the US was set to follow.
Still, stocks showed some of that same determination, rallying back from session lows, fighting hard (well, at least fighting) to hold onto support levels. That did not, however, keep them from trading lower late session as stocks once again turned lower in the last hour and gave back most if not all gains. Once more the bearish intraday action emerged even as stocks try to hang on. You can see the erosion taking place as stocks fight back but then lose ground.
That was very apparent in SOX. It had led the last leg of the current rally, helping stocks break higher once more. The SOX has failed to follow through on its breakout over the 50 day EMA. It looked to be building for an even better breakout, but Friday it rolled over definitively after trying to retake the level Thursday but failing miserably. It is now following the SP100 lower; that index broke lower even before SOX.
Thus we have SOX and OEX in breakdowns, not to mention DJ30. The other indexes, while holding on, show increasingly bearish action. SP500 is back below the 200 day SMA and shows weekly volume rising as the index closed the week lower; distribution starting again. The indexes try to hold on just enough to keep the financial show guests excited, and indeed there are some excellent upside movers. Overall, however, stocks are struggling and sliding lower.
Hate to sound pessimistic, but another drop was what we were looking for to help set a much sounder bottom in the 9 month base. Oil stocks continue to perform best, and that is never the recipe for a raging growth market. Investors are also moving money into some healthcare, and that is not a bad sector. Retail still shows some life, another sector that can lead. Larger financial stocks, while not completely solid across the board, are also looking decent and they too are a good leadership group. What a pullback would do is allow the strong to complete bases or make breakout tests while most of the market suffered. That the indexes have already started sliding back through support levels and failed at key resistance indicates the pullback is on.
THE ECONOMY
August durable goods fall, but improve.
No, this is not a flip-flop statement. August durables were expected to come in at -0.3%, but a weak transportation, i.e. autos, pushed actual results down 0.5%. That was the largest drop since May. Lions and tigers and bears, oh my.
It does not take much looking, however, to find gold in these numbers. July was revised higher to a 1.8% gain from a 1.6% gain. If you take out the weak transportation sector, durable goods orders rose 2.3%. That means electronics, computers and other such items performed very well. Possibly the start of the late 2004 capital investment we have been talking about as companies move to take advantage of the investment incentives before they expire at year end.
Thus the report was not the gloom that the headline indicated to many television talking heads. Of course we continue to worry regarding what happens in 2005 after companies spend to take maximum advantage of the tax incentives. It is a double whammy: they buy everything they think they will need to take advantage of the incentive, and then they need less in 2005 and there is no incentive to buy because the incentives are gone.
Deficits and 'costs' to the government.
Hyperbole is flying given it is an election year. Everyone is posturing to show how tough they are on spending, budgets, etc. We know, of course, it is all talk. A big central government that can tax anything does just that, and it does not want to give any back. That means less power. That is why so many in Washington rail against tax cuts. They look at deficits, at all they want to spend money on, and then pull their hair and rend their garments about how tax cuts are simple too great a 'cost' to the government.
Cost? What cost? The government doesn't make the money it takes in as taxes; it is given either voluntarily or through force, the underlying understanding being that if it is not given voluntarily, it will be forcefully taken. A tax cut simply means the government gets less of our money. It has to make do with less. A tax cut does not mean the government has to pay out any money; it is not buying anything as a result of a tax cut. Indeed, that is one of the beauties of a tax cut: the government does not have our money to spend, we do. We are much better at injecting that money into the economy and growing GDP; that is what eliminates deficits, not raising taxes. If raising taxes eliminated deficits, we could do it in a year: just jack up rates high enough to take in the extra cash. Won't work. As tax rates go up, work, investment in the economy, and economic activity drop. Raising taxes exacerbates deficits.
Maybe there is an opportunity cost, i.e., where the government loses the opportunity to spend our money on its pet projects. Everyone says tax hikes will be used to pay off the debt and fund social security. We all know that does not work. Money in is money spent. Thus with fewer tax dollars the government has fewer opportunities to spend. That is not a 'cost' as politicians make it out to be. It requires a choice on what to spend what should indeed be scarce tax resources on. No one in Washington wants to make the tough decisions on what money should be spent on. Name a problem and they will draft a bill to throw money at it then raise taxes to pay for it. If they don't get the money, there is no 'cost' in the sense they use. Nonsense.
THE MARKET
After trying to hold on, SOX followed the largest large caps lower. The rollover is all the more important as SOX helped usher in the last break higher in the rally. Its failure thus undermines the last move in the rally, one that was immediately reversed the following session. The Friday breakdown by SOX was just the next step in the Wednesday reversal on the heels of the breakout attempt.
This has the earmarks of the market sliding lower into the September test. There has been no vicious sell off as certain sectors continue to perform as noted above. The slide lower, however, is unmistakable. That is fine. In our view it sets up a better bottom after this 'election rally' moved stocks higher well into September.
Market Sentiment
VIX: 14.28; -0.52. Continues to dance around 14, a level that we feel will help further the current selling.
VXN: 21.1; -0.07
VXO: 14.14; -0.73
Put/Call Ratio (CBOE): 0.94; +0.02. Still quite high as mutual funds buy protection and other speculate on the downside.
NASDAQ
Hanging onto the 50 day EMA on lower volume, trying to shake off the Wednesday high volume reversal at the down trendline.
Stats: -6.95 points (-0.37%) to close at 1879.48
Volume: 1.362B (-2.99%). Volume declined on the loss, at least no distribution where sellers start rising in numbers. For the week volume was lower overall as NASDAQ posted its 30 point loss.
Up Volume: 393M (-330M)
Down Volume: 934M (+288M)
A/D and Hi/Lo: Decliners led 1.06 to 1
Previous Session: Decliners led 1.16 to 1
New Highs: 64 (+13)
New Lows: 43 (-6)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Slipped a bit lower Friday but still managed to close right at the 50 day EMA (1880). It is hanging onto this support after the sharp reversal the day after it broke higher and took out the January/April 2004 down trendline (1905). It is holding for now, but with SOX struggling, it is going to be a struggle for NASDAQ as well.
SOX reversed Wednesday and undercut the 50 day EMA. Thursday it tapped that level but could not take it out. Friday it rolled lower, breaking down and looking for further selling.
S&P 500/NYSE
Managed to retake the 50 day EMA but closed well off of its intraday highs that tested back toward the 200 day SMA.
Stats: +1.75 points (+0.16%) to close at 1110.11
NYSE Volume: 1.251B (-2.36%). Volume backed off on the session, but as SP500 posted a gain, not the best time to do that. Still, the large caps closed well off their intraday high; spiking volume in such a situation is poor action as it would show sellers jumped in and ran stocks back down. For the week, NYSE volume was up as SP500 was down.
Up Volume: 670M (+243M)
Down Volume: 567M (-261M)
A/D and Hi/Lo: Advancers led 1.25 to 1
Previous Session: Decliners led 1.2 to 1
New Highs: 143 (+53)
New Lows: 31 (+5)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Put on a good face Friday, rallying toward the 200 day SMA (1117) intraday but then selling once again late in the session to give away most of the rather modest intraday gain. It closed above the 50 day EMA (1109), but that recovery was hardly impressive; low volume, closed well off the intraday high. Next support is at 1100.
The small caps held up again after the Wednesday dump lower, closing again above the 18 day EMA. Still in a very tentative pattern, however, as it fades from the April high that made a potential left shoulder to its 6 month head and shoulders base.
DJ30
The blue chips have already put in a good drop after failing at the 200 day SMA (10,295) and the January/June 2004 down trendline. The selling volume was strong, but eased some Thursday and Friday as DJ30 slows the selling a bit after a pretty ugly drop. We note that it is holding up some above 10,000, a potential support level; after a 300 point drop that was out in front of most of the rest of the market it may rebound a bit before moving further down.
Stats: +8.34 points (+0.08%) to close at 10047.24
Volume: 204 million Friday 222 million Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THIS WEEK
Stocks finished the week weakly, but it was not a complete breakdown. There may be some rebound attempt as SOX tries to test its break below the 50 day EMA and DJ30 tries a modest bump higher after its drop. Unless it roars back, however, the action indicates some more downside. The Wednesday reversal, DJ30's fall, SP100's fall, and then SOX' drop Friday have started the selling. The rest of the indexes are trying to hold up, but they are no picture of strength.
That is why we have been winnowing upside positions that are struggling or are borderline, i.e. unable to make any headway and showing some eroding action. The strong stocks we will let run if they will, but we note that in harsher selling, most will fall; only the strongest will survive. Thus we have been inclined to take positions off the table if any question.
That does not mean there are not strong upside plays. There are indeed as we saw all last week, and even more are setting up. It depends upon the sector as to what is improving. Some techs and chips tried to start building patterns the past couple of weeks, but they will have to improve rapidly to keep that move going.
There are also ripe downside plays setting up, and we will be ready to move into more of those positions as they break lower and offer good entry points to relatively quick downside gains.
Support and Resistance
NASDAQ: Closed at 1879.48
Resistance:
Gap up point at 1894
The 2004 down trendline at 1905
The 200 day SMA at 1965
Support:
The 50 day EMA at 1880
The October 2002/March 2003 up trendline at 1863
The 50 day SMA 1855
July 2003 highs at 1755
S&P 500: Closed at 1110.11
Resistance:
The March/April down trendline at 1115
The 200 day SMA at 1117
1125 to 1130 stalled the last move.
1130 is the March/June down trendline.
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 50 day EMA at 1109.52 is trying to hold.
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 10,047.24
Resistance:
The 50 day SMA at 10,112
The 50 day EMA at 10,169
The 200 day SMA at 10,295
The February/June 2004 down trendline at 10,295
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:
10,000 is some support.
9900 is some support from the May and July lows.
9783 to 9793, the August lows.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
September 27
New Home Sales, August (10:00): 1150K expected and 1134K prior
September 28
Consumer Confidence, Sep (10:00): 100.0 expected and 98.2 prior
September 29
GDP-Final, Q2 (8:30): 3.0% expected and 2.8% prior
Chain Deflator-Final, Q2 (8:30): 3.2% expected and 3.2% prior
September 30
Personal Income, August (8:30): 0.4% expected and 0.1% prior
Personal Spending, August (8:30): 0.1% expected and 0.8% prior
Initial Jobless Claims, 9/25 (8:30): 350K prior
Help-Wanted Index, August (10:00): 37 expected and 37 prior
Chicago PMI, September (10:00): 58.0 expected and 57.3 prior
October 01
Auto Sales, September: 5.1M expected and 5.2M prior
Truck Sales, September: 8.1M expected and 8.2M prior
Michigan Sentiment-Revised, September (9:45): 96.5 expected and 95.8 prior
Construction Spending, August (10:00): 0.3% expected and 0.4% prior
ISM Index, September (10:00): 58.3 expected and 59.0 prior
End part 1 of 2
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