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trade stock, stock trading information
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10/26/04 Technical Traders Report Update
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Technical Traders Report Subscribers:
Full reports issue Monday, Wednesday and Saturday. Tuesday and Thursday we issue a market summary, summary play table, and some solid plays for the next session.
MARKET ALERTS
Targets hit alerts issued Tuesday: None issued
Buy alerts issued: SGMS; ISSX; ARTC
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:
- Modest bounce turns into a strong rally to the close.
- Consumer confidence hits 3 month low ahead of election.
- NASDAQ, Small caps jump off support on volume as large caps lend a hand.
- Subscriber Questions
Stocks overlook some bad news, find upside volume.
Monday we noted things were getting a bit oversold, that the SP500 had quietly tested lower and recovered, and that the news regarding insurance companies might finally provide a spark that would stop the large cap bleeding. Tuesday morning there was some signs of life, but the futures were fading and stocks opened softer once more. It was worrisome that NASDAQ and semiconductors were sluggish; they had been the recent leaders, and if they were not there the market might be in trouble. Indeed, stocks sold in the first half hour with NASDAQ heading back to test the 50 day EMA.
Consumer confidence was released at 10ET and it was worse than expected and was not promising for stocks. As is often the case, however, when the news gets worse stocks start to perform. Within 5 minutes of the release, NASDAQ bottomed at the 50 day EMA and started to rebound. SP500 was slightly positive, riding the wake of the improvement in the insurance stocks as it appeared Spitzer was not going to unleash all the dogs on MMC. Small caps were positive as well, and the combination helped pull the market up off the ropes.
It was not a clear green light to buy, however, as SOX was lagging and NASDAQ was struggling just to hold positive. Stocks edged higher and higher, however, and by lunch NASDAQ had broken positive for good. It was not a clear win at that point, however, as volume was still questionable. In the last hour, however, a real bid came into stocks, and a hard rally into the close was on. Volume opened up and the indexes moved straight up into the close. Only SOX was unable to turn positive, weighed down by some disappointing guidance from one of the stocks that helped start the chips higher in 2003 (SLAB).
It was not just a short covering move though no doubt there was short covering fueling the drive higher when it was clear stocks were not going to roll over in the last hour. Breadth was excellent on NYSE at better than 2.2:1. With the small caps and large caps working hand in hand the advance was across the board, something you don't see if a move is dominated by short covering.
Techs, particularly SOX, took a breather. After they worked hard to hold the market together as SP500 and DJ30 sold. NASDAQ still managed to rally. After this short rest, techs may be ready to rebound. With all of the stocks working together, a real rally could ensue.
THE ECONOMY
October confidence falls to 7 month low ahead of election.
Confidence hit at 92.8 versus expectations of 94.0 and 96.7 in September. This launched even more speculation about the consumer and the election. All session long the financial stations asked the dramatic open ended question: what does sagging confidence mean for President Bush? Personally? As to the election? Probably not what people would assume.
First, this confidence level, though down 13 points in 3 months and the lowest since March, is not a level where you see consumers cease consumption. We cannot repeat that often enough because of the flood of misinformation fed to viewers on a daily basis regarding confidence. There is virtually no correlation between what consumers say and what they do. When times are good they tend to be cautious in statements, afraid to jinx their good luck. In bad times they like to say things are better than they are; hope springs eternal, and you always want the surveyor thinking the other guy has it worse than you. Not until confidence plunges into the low 70's or into the sixties does it really show up in consumption in the general economy. To put it into perspective, Bush I was defeated when confidence was at 54. He was ahead in the polls, however, until the last week when his defense secretary was indicted. That swept away his lead, not the consumer confidence levels. At the time, even though the economy was recovering, it was much worse off than the current economy that grew at a 4.5% or better clip in Q3.
Second, look back at the last time this year confidence dipped. It was back in primary time when there was a scuffle between Kerry, Dean and Edwards to see who would be Bush's democratic challenger. When the political process gets down to bare knuckles, the average citizen tends to wince a bit. As the clich states, democracy in action is like watching sausage being made; best not to look too closely. You can look back at election after election. When things get nasty, confidence drops because both sides are tearing at each other's policies and highlighting in bold any shortcoming in our economy. Hell, it gets you down, but it is not nearly as bad as it is made out to be. The prison scandal as bad as what Hussein did there? Give me a break. The worst economy since the Great Depression? With a 4.5% GPD growth rate, better job creation and lower unemployment than when President Clinton ran for re-election? Come on now. Yet, that is how the game is played and it wears down the consumer. It will be short-lived. Again, there simply is really no correlation between consumption and confidence at these levels.
THE MARKET
It is Tuesday, so time to rally.
The on again, off again market was on Tuesday. Stocks started soft and then found footing. A mid-morning drift higher was replaced by an afternoon volume rally with stocks closing on their highs. Once again a move one direction was met with a volume reversal. Those have been pretty commonplace in a market that is struggling to come to grips with a close election, rising oil prices, a slowing economic expansion, and even some inflation thrown in.
NASDAQ and SOX took a back seat, though NASDAQ still posted a solid session on strong volume. Indeed volume surged on both indexes. Where have we heard that before? There has been some accumulation and some distribution. NASDAQ, SOX and SP600 have managed to hold the line as the large caps sold, actually posting some accumulation. They have thus far held up, allowing the large caps to do their selling and start a rebound.
The large caps are nowhere near out of the woods, but the action was an improvement. SP500 did not confirm DJ30's break to a new 2004 low. It is still in a downtrend for the year, but it also has held its base. It may seem rather insignificant, but Spitzer's reaction to the MMC changes has been very positive. Despite the subpoenas expanding to other insurers Tuesday, the large caps managed to rally. The bad news is being absorbed for now; it may not be over, but unlike prior lawsuits in other sectors, the insurance companies, at least MMC, appear ready to fall on their swords.
It was a broad move Tuesday even with the techs more or less taking a breather. If SOX can now join back in the upside move (it is still holding its 50 day EMA despite the loss Tuesday), stocks will be hitting on all cylinders. Given all of the problems confronting stocks, that sounds somewhat Polly Ann-like. The market tends to find bottom at the worst seeming times. We will see how SP500 reacts to its down trendline if this move can last to that point. For now it was a good start to a somewhat oversold market.
Market Sentiment
Early in the session volatility spiked near 20. That was the level hit in May and August when the market made minor bottoms in the base. All stocks pretty much turned when VIX hit this level.
VIX: 16.39; -0.19
VXN: 22.47; -0.23
VXO: 16.48; -0.39
Put/Call Ratio (CBOE): 0.67; -0.09
NASDAQ
Tapped the 50 day EMA on the low and then rebounded on volume to close at the session high.
Stats: +14.75 points (+0.77%) to close at 1928.79
Volume: 1.839B (+14%). The second accumulation session in four, and both of those were the strongest volume sessions in several months. There is a lot of buying in technology, at least more buying than selling. That has kept the index above support while the large caps sold.
Up Volume: 1.079B (+209M)
Down Volume: 731M (+20M)
A/D and Hi/Lo: Advancers led 1.51 to 1. Decent breadth but was weighed down by the semiconductor selling.
Previous Session: Advancers led 1.19 to 1
New Highs: 102 (+40). Perking up even as NASDAQ trades well below the June high.
New Lows: 75 (-11)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
A second consecutive tap of the 50 day EMA (1906) on the intraday low and a rebound. Tuesday the rebound rallied right on into the close as NASDAQ shot straight up and volume surged as the market closed. Still well off the October high (1971), the 200 day SMA (1958), and the January/June down trendline (1962). That said, it is holding the September highs and showing solid accumulation as it sets up for the try at those levels.
Tapped the 50 day EMA on the low as well, then rebounded to retake the 200 day SMA (1440). QQQ volume did not rally as we would have preferred.
Lackluster session as the chips had some earnings worries to deal with. Tapped the 50 day EMA (393.96) on the low, managed to hold, and rebounded. Still unable to push for a gain this session, but a good day of rest where it held support and continues to set up for a further move.
S&P 500/NYSE
Used the Monday intraday test of the March lows to find support. Rallied back to the 50 day EMA on very strong trade.
Stats: +16.29 points (+1.49%) to close at 1111.09
NYSE Volume: 1.688B (+22.5%). Strong trade as large caps used the Monday low volume reversal to advantage. As with NASDAQ, some of the strongest trade in the past month.
Up Volume: 1.355B (+691M)
Down Volume: 314M (-385M)
A/D and Hi/Lo: Advancers led 2.43 to 1. Excellent breadth as the large and small caps worked together. The breadth indicates not short covering but some longer term buying as well.
Previous Session: Advancers led 1.1 to 1
New Highs: 141 (+41). Showing improvement as well despite the hard sell off in the large caps. Strength in small caps is the difference.
New Lows: 38 (-25)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Solid volume rebound that took the large caps to the 50 day EMA (1112) on the close. That retook the September low at 1101, though that has less significance after it was breached. It has a tough road with the 200 day SMA (1119) and the September high at 1130, but it was a good, strong volume start to the rebound as opposed to a low volume relief bounce to the selling. Thus far that has not meant a whole lot in this market as one strong upside session is met with a strong downside session. For now we take a good rebound move on volume.
SP600 posted an excellent surge off the 50 day EMA (287.81), clearing the September high on the way. Solid rebound, and SP600 remained a market leader even as its recent partner, NASDAQ, was not at the head of the pack.
DJ30
Used the quiet Monday doji to rebound on rising volume as AIG gained over 4 points. Still deep in its downtrend but managed to retake the August low at 9800. Plenty of resistance as it fights back, but a solid upside volume surge. With DJ30 it is harder to rule out short covering given it is a narrow index made up of very large large caps.
Stats: +138.49 points (+1.42%) to close at 9888.48
Volume: 273 million shares Tuesday versus 233 million shares Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
No economic data due out Wednesday, just more earnings data flooding the market. after hours the news was mostly positive with some strong surges in late trade in several NASDAQ names. That bodes well for a continuation of the solid Tuesday move, but then again, this market has been unable to string together a solid upside move (downside, yes) with all of the overhang from the election, oil, war, tightening Fed, and apparently slowing economic expansion.
Overall Tuesday was a solid session with strong breadth and volume. The problem is, the large caps, largely thanks to the announcement of the insurance lawsuits, have dug a deep hole to climb out of. DJ30 hit a new 2004 low and has to work through that to complete its base. SP500 did not make a new low in its base, but it did make a lower low, and that typically means more basing as well.
NASDAQ continues to look solid and small caps look stellar. Both are set up to move higher with strong upside volume on NASDAQ two of the past four sessions. NASDAQ itself has to clear some serious resistance at the 200 day SMA and the 2004 down trendline, but NASDAQ is under accumulation and taking aim at those levels. SOX had a weaker session, but held up well over the 50 day EMA. If it can muster a strong move along with NASDAQ, we still feel it is an opportunity to move into additional positions on this index.
There are still many questions about the market and the economy, and many potholes to fall into as it tries to move higher. Nonetheless there are many strong stocks moving higher on volume along with the index. As we have noted before, leadership is the strength of a rally. It is holding up overall, emerging from a somewhat dicey test the past week.
Support and Resistance
NASDAQ: Closed at 1928.79
Resistance:
October gap up point at 1952
The 200 day SMA at 1958.49
January/late June down trendline at 1962
October high at 1971
Price resistance at 2050
Support:
The 50 day EMA at 1906
The low of the September range at 1900
September gap up point at 1894
The October 2002/March 2003 up trendline at 1900
The 50 day SMA at 1891
S&P 500: Closed at 1111.09
Resistance:
The 50 day EMA at 1111.89
The 200 day SMA at 1119.38
1125 to 1130 is prior price resistance, and 1128 is the September closing high.
The March/June down trendline at 1126
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 9888.48
Resistance:
9980 to 10,000.
The 10 day EMA at 9891
The 50 day EMA at 10,060
The February/June 2004 down trendline at 10,215
The 200 day SMA at 10,264
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:
9783 to 9793, the August lows.
9625 - 9660 from September 2003.
9500 from various price points in late summer to fall 2003.
9250. More solid support from the June through August 2003 consolidation.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
October 25
Existing Home Sales, Sep (10:00): 6.75M actual versus 6.54M expected and 6.54M prior
October 26
Consumer Confidence, Oct (10:00): 92.8 actual versus 94.0 expected and 96.7 prior (revised from 96.8)
October 27
Durable Goods Orders, September (8:30): 0.5% expected and -0.3% prior
New Home Sales, September (10:00): 1150K expected and 1184K prior
October 28
Initial Jobless Claims, 10/23 (8:30): 335K expected and 329K prior
Help-Wanted Index, September (10:00): 37 expected and 37 prior
October 29
GDP-Adv., Q3 (8:30): 4.3% expected and 3.3% prior
Chain Deflator-Adv., Q3 (8:30): 1.6% expected and 3.2% prior
Employment Cost Index, Q3 (8:30): 1.0% expected and 0.9% prior
Michigan Sentiment-Rev., October (9:45): 88.0 expected and 87.5 prior
Chicago PMI, October (10:00): 59.0 expected and 61.3 prior
SUBSCRIBER QUESTIONS
Q: In response to [a prior statement], it seems you and media commentators think money from one stock sale can immediately be moved into another stock investment. Why do you and others say this? Don't investors have to wait three days for funds to clear before reinvesting proceeds from a broker?
A: You don't have to wait to reinvest due to trades taking three days to clear. You can sell a stock and immediately buy another one using the 'float' to do it. This is a three day float on a stock transaction; option transactions clear in a day. As long as you don't exceed your cash or margin in the account, you can do this over and over.
That is how one can successfully capture dividends. The idea is to take a fixed amount of money and chart out when dividends are paid by solid companies. The idea is to get as many good prospects as possible lined up one after the other and roll that money from one to the next, capturing the dividend using the 'float' to do it. You buy a stock late on the record date, sell it immediately the next session using the clearing period to go after the next stock paying the next dividend you want to capture.
For example, say the dividend record date falls on a Thursday. So, you can buy the stock on Monday as day one. You can then sell the stock on Tuesday. As it takes 3 days for the sale to 'clear', when the record day comes on Thursday, you are still in the 3-day window of ownership. You are already out of the stock and no longer subject to price fluctuations and are on to the next stock. Note that holidays and weekends are not counted; it is the actual trading session that counts as a day.
This really only works well in a retirement account. The lower dividend tax rate does not help you much or at all as it requires the investor to hold the stock a minimum of 31 days to get the lower tax rate. To really make money capturing dividends you have to have a continual stream of income. If you have a block of money or stock you are using as collateral, you cannot use it for more than one buy at a time. Thus you can use the float but you cannot use it for more than one sale at a time and you have to wait the 30 days to make it work with taxes outside of an IRA.
End part 1 of 2
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