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world stock market, us stock market
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10/16/04 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Friday: None issued
Buy alerts issued: MXTP; YUM
Trailing stops issued: None issued
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 limps home with small Friday gain, small consolation prize after the selling.
- Economic data overload, but data showing Q3 stronger than Q2.
- Friday fails to change market complexion.
- Early results disappointing, but the torrent starts this week.
Slight rebound in a volatile expiration Friday.
SP500 and NASDAQ held near support after a week of selling, managing a modest rebound and a positive close, but that is about all you can say for the session. Stocks closed well off their highs and there were few breakouts even though volume surged. That volume surge was due to the October expiration, so no grand conclusions about the return of buyers can be made.
Investors were deluged with economic, earnings, and political data, and stocks did the ping pong bounce all session. Retail sales better than expected, PPI core a bit hotter, industrial production lower, Michigan sentiment (preliminary) cooler, but Greenspan saying oil is not going to be a problem. Volatility associated with expiration is expected, but each piece of economic data exacerbated the moves. SP500 managed to hold above the September lows, what it needed to do to stay alive, but hardly a strong endorsement for a rebound. Once again NASDAQ, with some potential small cap help, has to provide the leadership.
THE ECONOMY
Economic expansion may be slowing and there are headwinds, but this is not a weak economy.
Not since 1991 has the US economy been so maligned. What was grossly exaggerated as the worst recession since the Great Depression was just about the mildest. Indeed, the economy grew at 4% in Q4 1991 and was already well on the road to recovery earlier that year as the bogus claims were made. Ah the fog of election years.
The fog is equally as thick this time around. The recession of 2000 to 2002 hardly received a peep because there was no election ongoing. Now that it is an election year the economy is once more being compared to all-time slumps. Never mind the best growth rates in 20 years in 2003 as the investment incentives kicked in as they did in the early 1980's and the continued expansion, though at a slower pace, in 2004 (3.2% Q2 GDP isn't chopped liver, and Q3 is going to be closer to 5% than it is to 3%). There is still a dearth of conventional jobs and large, mature companies are still announcing layoffs as the fundamentals of the economy undergo another 20 year cycle change. These changes always generate fear about the unknown future, and it plays into politics.
We hear a lot about a horrible economy, once again the worst in decades. It is not perfect by any stretch, but it is still in recovery from a stock market crash, a quick plunge from 7+% GDP growth to negative, 9-11, Afghanistan war, corporate scandal, Iraq war, and the cost of security. Considering all of the obstacles the recovery is well heeled at this stage. Indeed, the economic data to this point this year is better across the board (yes, including job creation) versus 1996 when President Clinton was up for reelection. Somehow those numbers were good enough for economists to push for his reelection, but these better numbers are a "disaster for the American worker." Again, Q3 GDP numbers are going to surprise to the upside. Oil will play an increasing role moving ahead, and will even work to reduce the GDP gains as it is a rising import cost. It remains a major factor in continued economic recovery despite Greenspan's sanguine words Friday. For now the economy is still expanding and solid overall, but it does have those headwinds in front of it.
The good news: Retail sales surprise upside on strongest auto sales in 3 years.
September sales rose 1.5% overall, boosted by strong autos. That is the best gain since the March 2.1% jump. Ex-autos sales rose 0.6%, the strongest since a 0.9% gain in May. Recall that much was made of August's drop in auto sales (retail sales -0.2% with autos but +0.2% without) as some sort of sign that the consumer had dropped off. As we noted then, for the past two years auto sales have alternated jumping and tanking from month to month as consumers alternate what they are buying and also wait for incentives. The constant is that consumers remain strong as they have done all through the recession. They were strong when several trillion were lost in the stock market crash, and now that personal wealth is back to levels pre-crash, there is even less reason to stop consuming now.
Despite the woes of this supposed horrid economy, personal income is rising. Average hourly earnings are up 3.1% annually through September. Personal income (wages, salaries, rents, interest, dividends and social security payments) the past year is growing at a 5% clip. That is how the 'surprising consumer' as some put it continues to consume despite all they have been through and despite debt levels. Moreover, history tells us that as long as sentiment remains above certain low levels, there is little worry about consumers going into hibernation to the extent to cause an economic downturn.
Michigan preliminary sentiment drops.
There was a lot of worry Friday over the drop in the preliminary Michigan sentiment survey (87.5 actual, 94.0 expected). First, the preliminary Michigan number has about 200 people responding. Second, because of the small sample, it is almost always wrong. Third, it is still easily at levels that indicate the consumer will continued to spend. Fourth, until it hits those low levels (low 60's, 50's), the consumer will say one thing and do another. Heck, the consumer always says one thing and does the other regardless of the sentiment levels. Moreover, if you were in Michigan getting bombarded by all of this campaigning, your attitude might be kind of down right now. Anyone else out there just want to get this election over so we can get on with the lawsuits about the outcome?
New York PMI tanks again while industrial production gains don't match expectations.
Manufacturing continues to remain hot and cold. It looked to be heating up in September after a cool late summer, but the New York survey, one of the more volatile, was dropping hard again in October. Still showing expansion, but again, at a slower pace.
September industrial production rose 0.1%, less than the 0.3% expected. August was revised to -0.1%. Not a banner month, but this data also includes output from mining. The hurricanes wreaked havoc on Gulf of Mexico oil production, at least enough to keep significant production off line, and that impacted the final number. Thank goodness Ivan did not veer further west and really hammer the production facilities.
Greenspan does not see oil as a long term threat.
The rise in oil prices this year is likely to have less impact on the economy than the 1970's oil shocks according to Mr. Greenspan. He believes oil prices have cut 0.75 points from GDP thus far, and there would be "risk of more serious negative consequences . . . if oil prices were to move materially higher." Ah yes, the old 'material' factor. What the hell is material? $54/bbl sure seems to be, particularly with refineries humping to make heating oil but still falling short.
That, of course, is all near term worry apparently. Greenspan does have a point that the current price run won't hold. That is showing up in the futures market as long-term oil futures have not risen as fast as near-term prices. That implies short term disruption that will abate. Moreover, Greenspan was intent upon looking down the road, noting that technological advances and market forces would ensure an adequate supply as the world transitions to other power sources. We have no doubt that there will be a transition to alternative sources over the next 4 years as the next administration is finally forced to put together an energy plan and Congress is forced by the electorate to vote it into law. Some nuclear, solar, geothermal, and wind would all help. Of course many will want to forestall nuclear again for environmental reasons although countries such as France derive 70% or more of their electricity from nuclear. And wind power? One side of the political spectrum supposedly more concerned with air quality voted to block offshore windmills that would provide nonpolluting, renewable energy because the machines would be an aesthetic detriment. That is counterbalanced by the other side that is focused primarily on incentives to drill for more fossil fuels. As always the result will be in the middle. Some incentives for all viable sources would help along with letting the market decide which it prefers. There is definite economic incentive to move forward.
Both sides need to get it that a big dent can be made by attacking the problem incrementally from several angles. Those are not going to solve the near term price spike. That will take a reduction of the terror premium built into the price, and that won't think about occurring until the election is over and the threat of a pre-election attack is over. Even that won't remove all of the $10 to $12 terror premium.
Summary: The economy continues to expand at a solid pace though more indicators are showing slowing expansion versus accelerating. There are bright spots as the retail sales show and the Q4 capital investment will show, but there is a lot of uncertainty holding back full out investment in new people by businesses. That is nothing new, a holdover from the collapse starting in 2000. That keeps hope of a major breakout in jobs and more investment down the road, but for now it is the same hope that has been there for over a year. Even with that, the economy continues to surprise now and again as it did with the Friday retail sales. Another such surprise will come with the Q3 GDP.
THE MARKET
Stocks ran up, down, up and back down Friday, managing to hold a gain and avoid breaking the September lows on SP500. That extra mileage put on Friday and the rising volume did not change the complexion. Expiration may have worked to hold the market higher as there were many open option interests on SP500 at the 1100 level; large open interest at a key support level at expiration can keep a stock or index from moving in the direction most favorable to the majority open interest. Once those expire stocks can continue the move. That was downside up to expiration. That puts even more pressure on NASDAQ to perform in a leadership role.
Market Sentiment
Other than three consecutive closes over 1.0 by the CBOE put/call ratio and 2 back-to-back 1.01 closes by the overall put/call ratio, sentiment remains far from extremes. Indeed, the ratio of bulls to bears is heading the wrong way; bulls are near the bearish 55% level and bears are near the bearish 20% level.
VIX: 15.04; -1.39
VXN: 21.8; -0.5
VXO: 15.89; -1.24
Put/Call Ratio (CBOE): 0.88; -0.19
NASDAQ
Did not lead the market (small caps did that), but held the 50 day EMA and in the best shape to rebound this week.
Stats: +8.48 points (+0.45%) to close at 1911.5
Volume: 1.653B (+2.76%). Volume rose as NASDAQ held the 50 day EMA, but with expiration you cannot put much into it. Particularly true when compared to the Wednesday high volume reversal after the gap higher. Still, only 1 higher volume selling session on NASDAQ this month. NASDAQ has sold, but it has not shown the intensity of the other indexes.
Up Volume: 797M (+314M)
Down Volume: 717M (-371M)
A/D and Hi/Lo: Advancers led 1.45 to 1
Previous Session: Decliners led 2.23 to 1
New Highs: 54 (+8)
New Lows: 65 (+6)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Tapped the 50 day EMA (1898.75) but held its ground and rebounded to post a modest gain. It still gave back more than half of its upside move, but with the selling in the other indexes this was not bad action. NASDAQ has sold, but has avoided serious distribution, held the range marking the September highs, held the 50 day EMA, and is easily holding over the September low. It is in good position to rebound, but needs some earnings to deliver the beef.
NASDAQ 100 showed a nice, tight doji on the candlestick pattern, holding over the 50 day EMA for the fourth session and again tapping the 200 day SMA on the high. It too is in good position to rebound.
SOX is holding over the late September low. It has not given up that low, and if NASDAQ can lead it will likely follow.
S&P 500/NYSE
The large caps are still struggling, hanging onto key support at 1100 and holding over the late September low.
Stats: +4.91 points (+0.45%) to close at 1108.2
NYSE Volume: 1.647B (+10.49%). Best volume since the quarter end to close out September. As with that day, however, it was artificial given it was triple witch.
Up Volume: 977M (+539M)
Down Volume: 636M (-405M)
A/D and Hi/Lo: Advancers led 2.16 to 1. The small caps led and that really pumped up breadth.
Previous Session: Decliners led 1.44 to 1
New Highs: 99 (+43)
New Lows: 61 (-3)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Insurance stocks were still under pressure but unlike Thursday, SP500 was able to hold the line. It was an inside session with the high and low contained within the Thursday trading range. That does not tell us a lot about the session but it tends to allow the current move to continue. That is not what SP500 needs for more upside; it cannot afford to undercut the late September low (1101) on the close or it blows this rebound off the August low and continues the 10 month base.
The small caps held the 50 day EMA (287) and led the market higher. Fell back from resistance at 291-292 on the high. Still above the late September low and holding that important 50 day EMA. It can give NASDAQ some support on a further rebound attempt.
DJ30
DJ30 was the weakest pattern heading into the end of last week, and it proved it, breaking below the September low (9988 closing). It held the next support level at 9900 and managed a slight rebound as volume shot higher. As with SP500, it was the strongest volume since quarter end for what that was worth. Held the May lows but that is about all you can say for it right now.
Stats: +38.93 points (+0.39%) to close at 9933.38
Volume: 317 million shares Friday versus 268 million shares Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THIS WEEK
Stocks start Monday where they left off Thursday. Friday was a throw away session for the most part as it was expiration and stocks simply held their position without many breakouts. Volume was up but it was artificial given the triple witch expiration. In short Friday answered no questions though it gave the market another shot at rebounding as it bought time into next week for stocks to make an upside rebound.
Earnings will come pouring in this week and they will be the main focus. The economic data dies off some with CPI, Leading indicators, and the Philly Fed atop the marquis. Thus far earnings have obviously failed to inspire buying, at least on a wide scale basis. Individual stocks are rewarded, some stocks are killed, most are just generally languishing.
Many leaders are still holding their ground, continuing their pullbacks to near support until NASDAQ can lead SP500 higher. SP500 may still give an intraday test below the September low before rebounding. It is important it does not undercut that level on the close, but an intraday move below that level can chase out the final sellers and bring in short covering and some buying. NASDAQ has hardly distributed, so it is still in solid shape to rebound and continue the move higher. A good shakeout and rebound could bring the buyers right back in.
The market continues to have its problems. No move has been sustained in this 10 month base, and this rally from August has had its own starts and stops. Oil is still a primary governor on the economy's ability to grow; the market will discount the impact of that price increase before the economy shows a lot of it. So far this rally has mostly shaken off the effects of rising prices. If the keep moving higher, at some point that will cease. Thus we cannot ignore the problems of SP500 as it could be broadcasting trouble for the overall market. We just have to see if NASDAQ and the small cap indexes are strong enough to hold the line and bring buyers back in.
Support and Resistance
NASDAQ: Closed at 1911.50
Resistance:
September high at 1921.
October gap up point at 1952.
The 200 day SMA at 1963
January/late June down trendline at 1968
Price resistance at 2050
Support:
The low of the September range at 1900
The 50 day EMA at 1898
September gap up point at 1894
The October 2002/March 2003 up trendline at 1891
S&P 500: Closed at 1108.20
Resistance:
The 50 day SMA at 1108
The 50 day EMA at 1115.
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 1127
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:
September low at 1101
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 9933.38
Resistance:
9980 to 10,000.
The 10 day EMA at 10,038
The 50 day EMA at 10,127
The February/June 2004 down trendline at 10,240
The 200 day SMA at 10,287
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:
9900 is some support from the May and July lows is trying to hold.
9783 to 9793, the August lows.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
October 19
Housing Starts, September (8:30): 1950K expected and 2000K prior
Building Permits, September (8:30): 1948K expected and 1969K prior
CPI, September (8:30): 0.2% expected and 0.1% prior
Core CPI, September (8:30): 0.2% expected and 0.1% prior
October 21
Initial Jobless Claims, 10/16 (8:30): 352K prior
Leading Economic Indicators, September (10:00): -0.1% expected and -0.3% prior
Philadelphia Fed, October (12:00): 19.2 expected and 13.4 prior
End part 1 of 3
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