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us stock market, trade stock
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10/05/04 Technical Traders Report Update
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Technical Traders Report Subscribers:
Full reports issue Monday, Wednesday and Saturday. Tuesday and Wednesday a market summary, play summary, and a few new plays are issued.
MARKET ALERTS
Targets hit alerts issued Tuesday: None issued
Buy alerts issued: MVSN (bonus)
Trailing stops issued: ZBRA
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 mills around, taking a lower volume rest.
- ISM Services slips, Challenger jobs report thuds even as shoppers pick up the pace.
- Fed remains positive about inflation.
- A good day off as stocks try to set up for the next move.
- Subscriber Questions
Techs lead but stocks taking a breather.
After hours market wraps lamented the lack of momentum Tuesday, even suggesting that it was more of the same old thing. Not exactly sure where that notion comes from. Since mid-August, except for that sharp drop two weeks back, stocks have been on the upside track, making an important breakout last Friday after three prior rally sessions. Indeed the Friday volume was another and stronger follow through to the rally, pushing the distribution week aside. Momentum? There is plenty of momentum; stocks just needed a breather.
We cannot forget that earnings season is upon us (APOL announced great results after hours), and that was clear again before the open. PHM warned because it overpriced its Las Vegas houses and had to cut the sales price. AMD warned that its flash memory sales were dragging down its more robust areas such as microprocessors. PHM continued its fall, having plowed through its 50 day EMA Monday. Notably, however, AMD rallied back after gapping lower, and the semiconductors held their ground with SOX basically flat as it tapped 400 on the low and rebounded. Again, if stocks take another couple of sessions resting above near support, they would be well positioned for a move higher with earnings. Of course, earnings will have to be more than just so-so and guidance has to be positive.
Thus, all in all the action was just what stocks needed after a good surge higher, i.e. a low volume pause. Sellers did not swarm in and buyers did not give in. Tow more sessions and the set up for the Friday jobs report would be good. Question is, will the jobs report be good, and will the market care?
THE ECONOMY
ISM services shows economy continues slowing expansion.
At some point an expansion that continues to slow is no longer an expansion. As of yet the economy has not started to contract, just continues a slower and slower pace of expansion. The September ISM services index released Tuesday was another example, coming in at 56.7 versus the 59.0 expected and the 58.2 from August. Once more there is economic expansion, but again the pace slows. This is lost on some news services that reported the services sector 'dropped.' No, its rate of growth decreased, but it was growing, not dropping. This is the kind of erroneous reporting that goes on every day and influences views with respect to the economy, yet it gets a free pass.
As for specifics the employment index rose to 54.6 from 52.5, no great surge, but a continuation of what the regional indexes have shown. That holds out some hope for Friday's jobs report, but more on that below. New orders fell, however, dropping to 58.5 from 58.6; not much of a decline, but with the regional reports stating gains, this was a disappointment. Prices paid dropped to 67.1 from 70.0. A start, but this is the part of the index that outstrips all other sections.
In short, more growth but at a slower pace. Services is the largest part of the economy, and it was sporting readings in excess of 60 just a few months back. The Fed may say otherwise, but the soft patch continues to linger as the expansion continues its halting advance.
Challenger jobs report a downer.
Challenger Gray reported its month take on layoffs and job creation (the latter is a very new feature with no track record). Layoffs hit almost 108K, the highest level since January. Job creation was almost nonexistent at16K. Contrast that with August's 132K reading. Workers in computer-related fields and in telecom took the brunt of the firing, combining for near 60% of the layoffs.
This report does not bode well for the Friday jobs report. Weekly claims looked promising 3 and 4 weeks back, but that was storm related and artificially low just as the recent weekly numbers have most likely been artificially high. Either way, if you take the average it still is not a clear signal by any stretch that there will be an upside surprise Friday. Indeed, the other data indicate the 150K expected could be too high.
Now the important point. Unlike President Bush who allowed Senator Kerry to set the parameters of the debate, we don't frame the issue as how many employer/employee relationship jobs are created as defining employment growth. As discussed last weekend, the stage is set differently given the tech run up and collapse that was built upon the expectation of what technology could do, not what technology was currently doing for the economy. Now is when that technology has been adopted and is actually returning benefits. The promise in the 1990's was freedom from the office, more efficient transactions, etc. Now we live that with truly mobile computing and internet access, stocking your house with everything from groceries to cars with just internet clicks. This is opening an entirely, and this time a truly, new economy where new businesses operate in entirely new ways unseen just five years ago. The promise of all of those computers, software, PDA's and other devices are finally being fulfilled. This is creating a whole new economy that is not being registered by our conventional means. The only place it shows up is the household survey and the small business filings at the state level.
Say one thing, do the other.
Two interesting surveys of shoppers hit Wednesday, both showing different results. Consumers were surveyed as to how much they were going to spend this holiday season versus last. 90% said they would spend the same or less. As last season was not a hallmark of prosperity, that is not all that encouraging.
It is, of course, an opinion poll, and actions versus stated goals rarely merge with consumers. The ShopperTrack survey of consumer spending in September jumped 9.5% year over year, the strongest jump since January. We have seen the weekly shopping data track stronger month after month despite the lament of retailers such as WMT. Consumers are still spending and indeed are increasing their expenditures. Once more we see consumers saying one thing and doing the other, though we have yet to enter the holiday season. Many retailers we talked with, however, indicated they were getting a lot of early holiday shoppers in the stores.
Fed still positive regarding the economy.
Greenspan was speaking again Tuesday, and it was more of the same: slow patch is ending, inflation slowing, blah, blah, blah. The more interesting comments came from Dallas Fed governor McTeer. He went a few steps beyond the 'inflation slowing' rhetoric, expressly suggesting that inflation was no longer a concern in this expansion. With hold prices hitting $51/bbl Tuesday, that was surprising to some.
Maybe McTeer was delivering a subtler message, one that he did not even know he was delivering. If oil stays at $50/bbl or above for several more months you can be there won't be that much inflation to worry about because there won't be any economic pressure on prices due to a recession. Our sources tell us that $50/bbl is an important point for the Bush administration. We saw its first overture with respect to this level when IVAN closed much of the Gulf of Mexico production and SPR oil was loaned to refineries. If it starts to become very apparent that a prolonged stay at or above this level will result in a significant withdrawal. What the excuse will be is not clear, but that is what we are hearing.
THE MARKET
Tuesday panned out pretty much as expected after NASDAQ ran up to the 200 day SMA Monday, completing the next leg in the run higher, a run that reversed some sharp selling, burying it under a pile of advances on volume by the broad market and many solid leaders. The indexes were flat, volume was lower, and breadth was flat. In addition, stocks did something else important; the did not turn and sell hard. Buyers eased back on the throttle, but sellers did not emerge.
The result continued the more positive action shown since holding the 50 day SMA after the reversal selling two weeks back. NASDAQ will still probably ease back and fill the Monday gap higher before it is ready to take on the 200 day SMA once more. So far the action has been positive on the run and the pause at next resistance.
Market Sentiment
VIX: 13.95; +0.54
VXN: 20.02; +0.41
VXO: 13.27; +0.16
Put/Call Ratio (CBOE): 0.83; -0.03
NASDAQ
Gapped lower then rallied back, but could not do anything with the move, holding below the 200 day SMA on lighter volume.
Stats: +3.1 points (+0.16%) to close at 1955.5
Volume: 1.729B (-7.3%). Volume backed off substantially as NASDAQ paused again below the 200 day SMA. Trade remained above average, however, maintaining the higher level of the past week that shows institutional investors back in the game and joining it on the upside.
Up Volume: 1.002B (-277M)
Down Volume: 692M (+124M)
A/D and Hi/Lo: Decliners led 1.23 to 1. Pretty much matched the session.
Previous Session: Advancers led 1.53 to 1
New Highs: 110 (-82)
New Lows: 27 (+1)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ started lower at the open but rallied back positive as it continues to try to push the pace of the advance. This time, however, it was a feeble wave at the 200 day SMA (1965), never really coming close before falling back. It was a fairly narrow 15 point range, closing in the upper half, another more bullish indication. On the low (1946.86) it failed to close the Tuesday gap higher (1942 is the gap up point), something we feel it will do on this pause before it can make another and more serious run at the 200 day and the January/June 2004 down trendline (1976).
NASDAQ 100 also posted a modest gain on lower volume as it moved a bit further over the 200 day SMA, holding its gains. QQQ volume was much lower, coming in below average as it took a day off.
SOX weathered the AMD news very well, moving lower intraday back toward the 50 day EMA (394.55), easily holding above that level on the session low. Continues to look good over the 50 day, and setting up for another move higher. A test of the 50 day puts it in a good rebound point, and when the move starts, a good upside play on the chip index.
S&P 500/NYSE
Large caps looked very much like the SOX, showing a tight doji above support, in this case the down trendline it just broke Friday.
Stats: -0.69 points (-0.06%) to close at 1134.48
NYSE Volume: 1.416B (-7.83%). Volume was still above average, but backed off significantly as SP500 eased back from the prior strong upside volume.
Up Volume: 578M (-436M)
Down Volume: 826M (+333M)
A/D and Hi/Lo: Decliners led 1.03 to 1. Very flat session as the small caps did not participate. They did not sell off either.
Previous Session: Advancers led 1.44 to 1
New Highs: 289 (-127)
New Lows: 10 (0)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Solid performance, showing a nice tight doji that held well above the March/June down trendline (1130) on the low (1132) before rebounding to close in the middle of the day's range. Holding over the down trendline also keeps it above the recent September highs (1128), a double layer of support. Looking for another session or two over this level to set up the next leg higher.
The move over 300 seemed to put a bit of a scare into the small cap index as it faded a bit further Tuesday, but on light volume. It is still holding the new high hit Friday in its remarkable, market-leading rebound from the selling two weeks back.
DJ30
DJ30 continues to struggle below the January/February/September down trendline, holding the 50 day EMA (10,159) on the intraday low. Still in decent shape, but it is definitely having the agenda set for it as opposed to offering any kind of leadership.
Stats: -38.86 points (-0.38%) to close at 10177.68
Volume: 224 million Tuesday versus 253 million shares Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
No scheduled economic data tomorrow though there are some earnings starting to hit and we can expect more warnings as well; it is that time of year. As noted, after this run to next resistance where it ignored middling economic data, warnings, and generally all other negatives, the market will start looking toward the jobs report and those earnings to take further direction. The jobs report will have an immediate reaction, but the market pretty much has factored in a mediocre number. Earnings will have the more pronounced impact.
After hours some decent results were reported by APOL and YUM, both treated well in the extended trade. A decent start and treatment to the first earnings wave. Another couple of sessions of this low volume testing will set up a move into those early earnings. NASDAQ will need to break above its 200 day SMA on the next move, then hold that level on the test to continue this move. Basically, NASDAQ and SP500 are like the dog that caught the car. Now what are they going to do with it? Unlike the dog, the indexes can make more out of it.
Wednesday we are expecting more of the same: overall sluggish action as stocks digest the run higher and prepare for the jobs report and more earnings. While stocks overall will be sluggish, we will keep our eye on those set up to make the next move. Leaders tend to step out a bit faster than the rest of the market, and we can always start some positions on the initial move and add some more later.
Support and Resistance
NASDAQ: Closed at 1955.50
Resistance:
The 200 day SMA at 1965
January/late June down trendline at 1976
Price resistance at 2050
Support:
Gap up point at 1942
Recent September high at 1921
The 2004 down trendline at 1897
September gap up point at 1894
The 50 day EMA at 1888
The October 2002/March 2003 up trendline at 1874
The 50 day SMA 1860
S&P 500: Closed at 1134.48
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/June down trendline at 1130
1125 to 1130 stalled the last move and could be some support.
The 200 day SMA at 1119
The 50 day EMA at 1112
The 50 day SMA at 1104
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 10,177.68
Resistance:
The February/June 2004 down trendline at 10,270
The 200 day SMA at 10,299
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 50 day EMA at 10,159
9980 to 10,000 held last week.
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.
October 04
Factory Orders, August (10:00): -0.1% actual versus 0.1% expected and 1.7% prior (revised from 1.3%)
October 05
ISM Services, September (10:00): 56.7 actual versus 59.0 expected and 58.2 prior
October 07
Initial Jobless Claims, 10/02 (8:30): 335K expected and 369K prior
Consumer Credit, August (3:00): $6.0B expected and $10.9B prior
October 08
Non-farm Payrolls, September (8:30): 150K expected and 144K prior
Unemployment Rate, September (8:30): 5.4% expected and 5.4% prior
Hourly Earnings, September (8:30): 0.3% expected and 0.3% prior
Average Workweek, September (8:30): 33.7 expected and 33.8 prior
Wholesale Inventories, August (10:00): 0.8% expected and 1.3% prior
SUBSCRIBER QUESTIONS
Q: After reading about the seeds of a new economic expansion in your report everything seems great. But what about $50/bbl petroleum? Maybe I missed this important fact in your report, but how can a petroleum based economy blossom with that dead weight?
A: The scenario discussed last weekend points out parallels with the 1970's and the early 1980's. The seventies were a case study of flawed policy and reaction to external events that led to one of the worst economic stretches in the US outside the Great Depression. The return to traditional free enterprise, small government values in the 1980's helped spur the amazing 20 year expansion. While there are similarities today, the seeds of success can be trampled by reverting to oil big government ways. The Bush administration is no free enterprise administration with its runaway spending; it is, however, a promoter of small business ideals, and that has helped trigger the expansion thus far despite the 2000 stock market crash, the ensuing recession, 9-11, corporate scandal, the ongoing cost of the war on terror and security at home. All things considered, it is a miracle we are where we are today.
Oil is always a problem for any economy. If it stays too high, too long it can cause economic slowdown, even recession. An old benchmark is $35/bbl. In the past that level, regardless of when it has been hit, causes economic slowdown. There are a few wrinkles that mitigate this a bit, however. First, despite beliefs that the US is more dependent upon oil than in the past, it is not. This does not mean we can live without the tap on full, just that we are changing and will continue to change as more technology is introduced into the energy area, e.g., hybrid cars and then hydrogen cars in 15 years. Specifically, US petroleum use per dollar of GDP dropped dramatically from 1973 to 1981, and has been trending lower each year since. In 1973 usage was 132 BTU/GDP dollar. In 2003 it was 59.2 BTU/GDP dollar. At the same time energy usage has surged from 57.35 quadrillion BTU to 61.61 quadrillion in 2003. We are more efficient, but we use a lot more. We can, however, squeeze more out of each barrel, so that means higher prices do not hurt . . . as much.
For example, the cost of driving our larger vehicles (SUV's, trucks and vans) has dropped sharply. In 1973 it was 15 cents per mile. By 2002 that was almost cut in half to 8.5 cents. Passenger cars are more efficient as well, down from 11.8 cents to 6.7 cents. This is one example of how we are more efficient and thus able to squeeze more out of every barrel. We still use a lot of barrels, but price increases don't mean the same because of it.
At some point, however, if price is high enough for long enough then we have a problem. Today's $51/bbl price is a record high, but in inflation adjusted dollars they are still below the $80/bbl from the early 1980's, the time that a truly new economy emerged from the rubble of the 1970's. That expansion survived the highest oil prices in history (real or inflation adjusted) and we know the result. Prices started to fall after that point, however, and that remains the key.
That brings us back to the beginning: we use a lot of petroleum, and it is at a point where it will do damage if it does not decline in a few months. If it continues higher, well, the time frame shrinks as to when it has to reverse. No recovery is immune from ruin if one of its major components spins out of control. One of the hallmarks of the 1980's and 1990's was low to no inflation. Growth without inflation was thought impossible (though most of the US history shows that to be the case, the benefit of a small federal government) after the 1970's. If oil runs higher, not simply because a cartel pushes it higher but because of real demand, that is inflation. Expansions have a hard time surviving in the face of serious inflation. Thus you are correct that oil plays a big part in this scenario just as do low tax rates, less regulation, etc. In retrospect it almost seems amazing we ever have big expansions given the federal governments intrusions. Unfortunately, as our efficiency of petroleum usage has improved dramatically, so has the size and intrusiveness of the federal government.
End part 1 of 2
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