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money investment, day trading
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10/13/04 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: YHOO
Buy alerts issued: JUPM
Trailing stops issued: VRNT; SIMG; WYNN; ECL; TDS
Stop alerts issued: CHK; OIS; OPTV; GLDN; LMT; BDX
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 start higher but reverse on volume once more.
- Oil continues to rise but other commodities sink on slowdown fears.
- Intraday volatility rising as stocks trade in a narrow range.
- Earnings season off to rocky start as indexes try to hold next support levels.
Modest earnings try to start a rebound but fail 5 minutes into the session.
Oil was lower, INTC's chip inventory looked stable, and more companies are advertising on the internet. What more could you ask for? For investors, apparently a lot more. After gapping higher stocks spent the next 4.5 hours giving the gap back and also some important support (SP500 fell back through the 200 day SMA and the 50 day EMA).
The early move higher was not broad. It was led by semiconductors and technology. The other large caps (e.g. financials) and small caps struggled from the open. Indeed, the rally had a big hole in it as the commodities and commodity related stocks were hammered. They were not pulling back to take a breather; they were being sold hard and on high volume, gapping lower and never really trying to come back from that early machine gun barrage. The tech rally on rather flimsy numbers did not hold for long (a matter of minutes) before they too started to sell after the eager buyers and nervous shorts did their work.
The commodities sold on high volume as money definitely moved elsewhere. We say elsewhere; it really went into cash because most everything moved lower with no sectors showing any real accumulation. Volume was up in the commodities and related stocks, and it was up in the overall market as well. Stocks sold, broke sharply lower right after lunch, then wandered aimlessly into the close, unable to mount any comeback of note.
Once more stocks have reversed from a solid move, and it is happening in both directions. They reversed from a good upside move in September, selling sharply in price on some rising volume. A week to the downside and then a sharp upside reversal on strong volume off the 50 day EMA. The Wednesday selling was a continuation of the most recent reversal that started last week. It was, however, the second distribution session on SP500 during this particular round.
While stocks suffer sharp jolts up and down, accumulation and distribution are constants in measuring the market's moves. Since mid-September, SP500 accumulation/distribution stands at 5/5. On NASDAQ it is a much stronger 7/2. When dealing with institutional selling, however, it is the weak link that you have to be concerned with. With 2 distribution session in the last 4 and heading back for another test of the 50 day SMA, SP500 is the focus. Wednesday was an ugly session, but SP500 has not taken out that support that held on the last selling round. With the volatile swings within this relatively narrow range, it could easily hold that level and rebound right back up.
THE ECONOMY
Oil starting to wear down economic activity?
Higher oil prices have thus far failed to stall out the US consumer. Indeed, as we are seeing in the weekly sales reports, consumption is actually picking up. Small business enthusiasm continues to rise and they anticipate strong capital investment heading into the end of the year. Sounds pretty good even with oil prices above $40/bbl and now $50/bbl for a few months.
As for the bigger picture, however, copper consumption, despite the supposedly strong world economy, is slipping. It fell 3.3% worldwide in July. Chinese copper usage fell 21% that month. Copper is deemed an economic canary because it is a basic commodity used in so many industrial applications, e.g. wire. When there is uncertainty about an economic recovery, look at copper prices and stocks.
Copper prices fell 10% Wednesday, but it was on the news that China's and the world's usage was down. In other words, price was not acting as an indicator, but reacted to news that usage was lower. Typically the price is the indicator of usage; it forecasts as opposed to reacting. It was not showing a decline in demand nor were copper stocks before this news. Thus we are somewhat skeptical of this announcement. It definitely has a short term impact on prices, but demand, not headlines, ultimately determines price. Thus we would not be very surprised to see this sharp pullback end up being just that. For the continued expansion of the global economy, that is definitely what we want.
If copper prices are truly starting to soften, however, what is the cause? China has said it was going to slow its economy, but it has not had a lot of success thus far. That is not surprising when you look at the historical data when governments try to control their economies. Much as with training a puppy, you say 'no' a dozen times with rate hikes and the puppy does nothing. Then the central bank takes out a rolled newspaper and knocks the crap out of the economy. It then goes into the corner and sulks, and that shuts things down almost immediately.
In addition to the Chinese government trying to artificially slow its economy, there is also the rising oil price. When oil gets high enough, money that would go into development has to fund more and more of the energy cost. At some point it is not economically feasible and the project is shut down. Perhaps oil is reaching a stage where some of this is occurring in China. It is very early in the process, but we do know that Chinese oil imports rose 47% in July. That higher price is going to pinch more and more as more oil is imported.
THE MARKET
A gap higher and then a reversal on rising volume is never positive upside action, particularly if some key support is broken. Stocks were set to try the next rebound after selling last Thursday and Friday. The gap higher was used to sell into, and though the selling abated in the last two hours, stocks could not mount a rebound.
This reversal was just the last in a volatile 6 weeks where the indexes have ricocheted in a relatively narrow range. Stocks have surged on rising volume and they have sold on rising volume. There is definitely turmoil, definitely a battle ongoing between buyers and sellers with volume surging after lying dormant through the summer. SP500 distribution sessions are a red flag, but we also note that leadership has been overall sold. Wednesday saw some leadership groups in commodities and related areas take a beating on volume. Others held up very well (e.g. internets). Leadership is always the key to any move, and thus far overall leadership is holding the line. The failure of the oil and gas, steel, copper and other commodity and related stocks, however, along with the rise in overall volume, is definitely a blow to the rally attempt.
Market Sentiment
VIX: 15.42; +0.37. Volatility is creeping back up, but it is just creeping, not yet passing the September high at 16.
VXN: 22.13; +1.2
VXO: 16.25; +1.08
Put/Call Ratio (CBOE): 1.07; +0.07. Second consecutive close at or above 1.0. This is a contrary indicator, and when enough closes over 1.0 pile up that often indicates an upside move. With the other indicators such as volatility and bulls versus bears still far from extreme levels, however, a series of closes over 1.0 has only led to modest upside moves when they have occurred this year.
NASDAQ
Gapped higher on earnings hopes, but that turned out to be a lot of short covering as the index reversed and sold on volume. It held up the best, however, managing to hold at the 18 day EMA by the close.
Stats: -4.64 points (-0.24%) to close at 1920.53
Volume: 1.799B (+18.11%). Big volume surge as shorts covered early and sellers then jumped on stocks and sold them off. Only the first distribution session on NASDAQ for the month.
Up Volume: 901M (+279M)
Down Volume: 821M (-36M)
A/D and Hi/Lo: Decliners led 1.57 to 1. Strength in semiconductors and internets kept downside breadth under control.
Previous Session: Decliners led 1.33 to 1
New Highs: 104 (+28). New highs rose despite the selling. Not that vicious a day judging from the internal indicators.
New Lows: 52 (-3)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Gapped to some resistance at 1950ish and that was as far as it was going. NASDAQ spent the remainder of the session selling back though it managed to hold the line at the 18 day EMA (1917) after slightly undercutting that level intraday. Volume surged on the reversal; sellers came in hard after the upside open prompted by some so-so earnings from Intel. Unlike its counterparts, NASDAQ was able to hold its near support level on the close (18 day EMA and the September consolidation range). It is in position to hold the line and rebound, but with the other indexes sagging below support, NASDAQ is going to have to be a real leader to do so.
NASDAQ 100 gapped over the 200 day SMA but could not hold the move. It too managed to hold above the 18 day EMA on the close. QQQ volume was the strongest since early August.
SOX was the lone winner Wednesday, but it was unable to hold a move over the 50 day EMA (394.57) as it rolled over after hitting resistance at its intraday high at 400. Still below the late September and early October highs.
S&P 500/NYSE
The large caps had a tough time, unable to hold the 200 day SMA or the 50 day EMA as volume spiked on the selling.
Stats: -8.19 points (-0.73%) to close at 1113.65
NYSE Volume: 1.546B (+17.09%). Highest volume since the last session of September when Q3 ended. You have to go back to July before that session to find comparable trade. Definitely selling ongoing as the large cap oil and gas and commodity stocks took a solid beating. Two distribution sessions in the past four. Another one and SP500 most likely undercuts the 50 day SMA and is in serious trouble.
Up Volume: 391M (-46M)
Down Volume: 1.14B (+268M)
A/D and Hi/Lo: Decliners led 2.06 to 1. The selling in both small and large caps pushed most stocks lower.
Previous Session: Decliners led 1.12 to 1
New Highs: 105 (+14)
New Lows: 43 (+4)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 tried to build upon the nice Tuesday reversal and doji, gapping higher at the open. As with NASDAQ, that was all she wrote, however, as it rolled over, cut through the 200 day SMA (1120) and the 50 day EMA (1115). It did manage to hold easily above the 50 day SMA (1107) and recover late toward the other 50 day. Minor victory. It was not a positive session, and about all SP500 can do at this point is test and hold the 50 day SMA, making a modestly higher low as it rebounds from that level.
After a nice doji at the 18 day EMA Tuesday, SP600 folded and closed well below that level, posting the largest loss of the major indexes. It has the 50 day EMA (286.95) as its next potential support level where it found traction in late September.
DJ30
The blue chips continue their fade lower, tapping the February/April down trendline on the low (9957) and rebounding to hold 10,000. Volume surged on the distribution. This is where DJ30 held in late September, and where it needs to hold here or it is back to 9900 or the August low at 9800.
Stats: -74.85 points (-0.74%) to close at 10002.33
Volume: 276 million shares Wednesday versus 215 million shares Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
The trade numbers are out before the open, but the focus now is on earnings (and the ever present oil watch). After hours we saw the divergence in where the money is flowing. AAPL blew away its number on strong iPod sales. SNDK (storage devices) warned for the future and was slaughtered. NVLS reported lackluster results and it was down as well.
Which will prevail? Looking at QQQ after hours, after a modest early spike it railed off and was trading lower. Thursday is setting up for another fight between the bulls and the bears, both hitting the market with more strength than in August and early September when the bears hibernated and the market was able to rally on low volume. Now they are fighting for control heading into year end. The major indexes are still in position to make higher lows and continue the move higher, but they certainly did not show that inclination Wednesday.
The key test for this current move lower now shifts to the 50 day SMA for SP500 and the 50 day EMA for NASDAQ. NASDAQ has the leadership potential given its solid accumulation, but it cannot do it without SP500. The latter has those recent distribution sessions as a concern; if the commodities and related stocks suffered just a short and sharp pullback, it will be ready to rebound after a test lower toward the 50 day SMA.
We are looking for that test and anticipate it will hold for another rebound. We are looking at leadership stocks that have pulled back but have not broken near support; those are the stronger stocks and when unleashed will rebound the best.
Support and Resistance
NASDAQ: Closed at 1920.53
Resistance:
October gap up point at 1952.
The 200 day SMA at 1964
January/late June down trendline at 1970
Price resistance at 2050
Support:
The 50 day EMA at 1115
The 18 day EMA at 1917
The low of the September range at 1900
September gap up point at 1894
The 50 day EMA at 1898
The October 2002/March 2003 up trendline at 1887
S&P 500: Closed at 1113.65
Resistance:
The 200 day SMA at 1120
1125 to 1130 is prior price resistance, and 1128 is the September closing high.
The March/June down trendline at 1128
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 SMA at 1107
1096 to 1100 represent price support.
May low at 1084 (closing) to 1076 (intraday).
1080 (May and July lows).
1064 (August low).
Dow: Closed at 10,002.33
Resistance:
The 50 day SMA at 10,118
The 50 day EMA at 10,145
The February/June 2004 down trendline at 10,247
The 200 day SMA at 10,293
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:
9980 to 10,000 held again on Wednesday.
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 14
Trade Balance, August (8:30): -$51.4B expected and -$50.1B prior
Export Prices ex-agriculture., September (8:30): 0.4% prior
Import Prices ex-oil, September (8:30): 0.4% prior
Initial Jobless Claims, 10/09 (8:30): 340K expected and 335K prior
October 15
Business Inventories, August (8:30): 0.6% expected and 0.9% prior
PPI, September (8:30): 0.1% expected and -0.1% prior
Core PPI, September (8:30): 0.2% expected and -0.1% prior
NY Empire State Index, October (8:30): 25.0 expected and 28.3
Retail Sales, September (8:30): 0.7% expected and -0.3% prior
Retail Sales ex-auto, September (8:30): 0.3% expected and 0.2% prior
Industrial Production, September (9:15): 0.3% expected and 0.1% prior
Capacity Utilization, September (9:15): 77.5% expected and 77.3% prior
Michigan Sentiment-Preliminary., October (9:45): 94.0 expected and 94.2 prior
Treasury Budget, September (2:00): $22.0B expected and $26.3B prior
End part 1 of 3
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money investment
day trading
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