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world stock market, us stock market
Begin Part 2 of 2
THE MARKET
Hit resistance levels and with the confidence numbers lower than expected, the indexes turned down once again on higher volume. Could be a quick demise to the rally attempt.
Overall market stats:
VIX: 24.02; +1.58. Finally broke free a bit to the upside, but it is still pathetically low for any type of reversal. It needs to be at least over 30, and 40 to 60 would be better. Yes, way off.
VXN: 48.74; +1.52. The Nasdaq hit resistance and dove lower on higher volume. Volatility, however, did not match the drop. It is still showing no fear. Foolishness.
Put/Call ratio (CBOE): 0.73; +0.13. Higher once again, but not high enough. This thing needs to race above 1.0 with options players saying 'buy puts, buy puts, buy puts' until they are hoarse. That is not happening, and it seems it won't happen until the indexes test or slightly undercut the prior lows.
Sentiment indicators are secondary. They can show signals of what to expect when they reach extremes. They do not replace primary indicators such as price and volume, especially when the sentiment indicators are mixed as they are now.
NASDAQ:
No indecision today: the consumer confidence leg of the recovery was shaken, and the techs decided to turn lower once again and keep the downtrend going.
Stats: -47.43 points (-2.5%) to close at 1864.98.
Volume: 1.434 billion shares (+20%). Down 20% Monday, up 20% today. Down volume crushed up volume 1.131 billion to 278 million shares. Distribution days early in an attempted rally usually kill it off; not always but usually. On the positive side, the volume was not as high as last Wednesday's and Friday's buying volume. Relatively today was not so bad, but more sellers did enter the market on the news.
A/D and Hi/Lo: Declining issues added to their strength at 1.72 to 1 (1.25 to 1 Monday). New highs fell to 59 (-21) as new lows rose to 114 (+24).
The Chart: http://www.investmenthouse.com/cd/$compq.html
After tapping at the middle down trendline Monday and showing a doji, it tried to move higher early until the confidence number hit. The selling then came on higher, though still below average volume. It could turn, but it has continued its short term downtrend, and it looks as if it is going to head back toward the recent low at 1817. The July lows have now formed resistance, and there is no stomach in the buyers to go in and try to rally the index over that level, at least not right now. The rally attempt that started last Wednesday is still technically alive as the Wednesday low (1817) marks the bottom. In other words the index can pull back to that level on light volume and still give us a follow through. If volume crescendos, however, that is another story.
Dow/NYSE:
Did not try too hard to hold up, reversing from resistance and falling toward support at 10,220.
Stats: -160.32 points (-1.5%) to close at 10,222.03.
NYSE Volume: 983 million shares (+15%). Down volume was 701 million versus 272 million upside shares. Volume remains below average, but is climbing on the selling. As with the Nasdaq, the volume was still below average and lower than the buying volume last week.
A/D and Hi/Lo: NYSE declining upped the lead to 1.52 to 1 (1.3 to 1 Monday). New highs fell to 111 (-22) as new lows rose to 50 (+15).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow turned down hard, falling close to support at 10,200 (10,214.34 on the session low). 10,200 to 10,120 represents the range where the Dow has been spending more and more time of late. Instead of making higher lows, it has started to slightly lower lows and lower highs. It is descending toward a showdown at 10,200 to 10,120. Problem is, the more times it spends at these levels after smaller and smaller bounces higher, the more likely the chance it will fail. In addition, the Nasdaq's and S&P's travails below the July lows are dragging the Dow lower as well. For now we watch and see if the index is going to close below those lows once again. That will most likely mark a test of the prior lows.
S&P 500: In a quick swoop the big caps closed once again below the July lows on rising NYSE volume, albeit lower volume than last week's buying volume. It hit the down trendline and then tanked today, closing in on the August intraday low at 1153.32. Another test looks likely, and perhaps a new low on a move down to test the prior low of 1081.19.
Stats: -17.70 (-1.5%) to close at 1161.51.
Volume: NYSE volume rose 20% to 1.434 billion shares.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
GDP is out before the open, and the question everyone has is whether it will it show a negative reading for the first time in ten years. Six one way, half a dozen the other. We are in a recession and so is the world. Hyper-technical definitions mean little when juxtaposed with reality.
The gloom level is getting high, but we still keep hearing on the television that the turn is at hand, hang in there, things will be better. As the sentiment indicators have been telling us, there is too much of this 'stay the course' attitude as the fear level is not rising. Without that real spike in fear, each rally attempt is getting pushed back. The most recent attempt is not dead, but it is very hard to invest in a rally that moves higher 4% then runs back down 3%. It has not confirmed itself, and until it does, we have to stick with the very best upside plays and take decent profits when they are there. We also play the downtrend as the put plays on the reports have been showing us. For now it looks as if the indexes are going to test the recent lows once again if something dramatic does not shift them higher. What they do at that level will tell us a lot. If the volume continues to increase on the selling, we look for a break and further downside, but there will be tests higher along the way that will set up more downside plays. That is where we reload those downside plays.
That makes us sound pretty gloomy, but it is hard to ignore the facts. The indexes are in a downtrend, the dollar has the market in a flux, not many great patterns, the almighty consumer is not as strong as hoped, and the fear level just is not very high. That is not the recipe for a strong move higher in the near term. We would love to be corrected on this with a strong rally, but we have to see it.
The way we are making money in this market right now is catching the breakouts when they occur when an alert is hit and taking profits after 10% to 15% or when the move simply slows down (maybe just at 5%) AND not letting a play turn negative on us. Nip it in the bud. It is harder to do this, but if the indexes are going to plow through the recent lows, we don't want to be long on stocks and options when they do so. Today we had downside plays (e.g., MMC) and upside plays (e.g., PII). We are focusing on a narrow group of stocks each day as we always do, making it a point not to get too spread out. We don't have a ton of money at risk in the market. We are trying to hit the easy plays, the great patterns that breakout, the ripe put plays that just broke support or topped out on a roll higher in a trading range. Several plays on the reports never hit our buy points; it is that kind of market. We don't worry about those and instead focus on those that do what we want. We see the move, send the alert, get in on the action, take what we can, move on. Boom, boom, boom. If we get in and the stock runs but then slides the next session, we don't panic, but will give it another session. At the same time, however, we won't let it tank on us if the breakout fails.
We are going to get that recovery at some point when the interest rate cuts and all of that money supply takes effect. The Arm's index is showing another bottom is coming in the next 20 days. Problem is, the recovery is being dragged out because of the internal problems build in by the Fed by putting half the banks on loan restriction, a Congress and administration that does not believe we are in recession and wants to spend ever more instead of allowing free investment in the country. There is a lot of burden put on the consumer to save the world (yes, that is what the U.S. consumer must do literally), and that takes awhile. Consumption has not dropped off, but the business side of the economy is no nearer recovery. The market will lead the turn around, and we have to keep an eye open for those signals. It could still do it on this rally, but there is a lot of sloppy ends that need to be tidied up (poor patterns, sentiment indicators are not supportive).
Support and Resistance Levels
Nasdaq: Closed at 1864.98.
Resistance: 1935 to 1940 stopped the last move higher. Much higher in the range, 1985 to 2013 is pretty congested.
Support: 1820 and 1785 are potential support or at least a bounce level. The low is 1619.58.
S&P 500: Closed at 1161.51.
Resistance: 1183 is still holding as resistance. Then 1200.
Support: 1150 has held as support before (recent low is 1153.32). The low is 1081.19.
Dow: Closed at 10,222.03
Resistance: 10,400. The 50 day MVA is at 10,445.78. 10,500 is stronger. 10,600 is strong resistance.
Support: 10,200, then 10,120 as well. Then 10,000 to 9992, the middle of its smaller double bottom pattern in March and April.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
8-27-01
Existing Home Sales, July (10:00): -3.0% from June.
8-28-01
Consumer Confidence, August (10:00): 114.3 actual versus 117.5 expected and 116.3 prior (revised form 116.5).
8-29-01
GDP-Prel., Q2 (8:30): 0.0% versus 0.7% prior.
Chain Deflator-Prel., Q2 (8:30): 2.3% versus 2.3% prior.
8-30-01
Initial Claims, 8/25 (8:30): 400K versus 393K prior.
Personal Income, July (8:30): 0.3% versus 0.3% prior.
PCE, July (8:30): 0.1% versus 0.4% prior.
Help-Wanted Index, July (10:00): 58 versus 58 prior.
8-31-01
Michigan Sentiment-Rev., August (9:45): 93.3 versus 93.5 prior.
Chicago PMI, August (10:00): 40.5% versus 38.0% prior.
Factory Orders, July (10:00): -0.5% versus -2.4 % prior.
SUBSCRIBER QUESTONS
Q: Over the last week or so my girlfriend and I have made a ton of money based on your [plays] on the SOX and OEX. Thank you so much. It appears they pretty much move with the NASDAQ only with great price swings. Which leads me to believe (for the most part) that as long as we have handle on the direction of the [Nasdaq] then we can play the indexes accordingly. My questions are these, since you don't always include the indexes in your reports are their some rule of thumbs for playing them, i.e., resistance levels, open interest, etc.?
A: First, we are trying to cover the indexes more and more for all of our subscribers. In this market, the indexes can give some of the best payoffs for the very reason you have pointed out: if you figure out the market direction, you win with the indexes and are not as subject to individual news stories on any particular stock. The S&P tends to follow the Nasdaq, just a bit delayed. Note how the Nasdaq broke down first below the July lows, and now it has dragged the S&P with it. The Dow is more of a different animal, but with the S&P down, the Dow is fighting for its life to hold onto the July lows. So the OEX is one of our favorite plays because it gives more moves than the QQQ, though we can play the MNX, or the mini NDX (Nasdaq 100). This is one we plan to cover more in the future in addition to the QQQ.
The SOX is a part of the tech world. Indeed, it is one of the most if not the most important pillar of tech; after all, semiconductors are the foundation of practically all technology. It tends to influence the Nasdaq up or down, but it does not always move lockstep with the Nasdaq. Case in point on Monday when the Nasdaq was down but the SOX was up. It is great to play as well because it gives super moves and sets up great patterns. It is also great because it does tend to lead up or down and gives a signal for the Nasdaq and the OEX.
What do we look for? We love to play the downtrends or uptrends when an index runs into the downtrend or sells down to the up trendline. Those are just great entry points. We also love to play when an index rams its head into resistance such as the SOX with the 200 day MVA on Monday. On the other side, we like to play the upside when an index sells down to solid support and bounces; this is best in an uptrend, but it also works in a trading range (e.g., the Dow earlier in the year between 10,500 and 11,000). The SOX and indexes also set up head and shoulders patterns, double bottoms, double tops - - signature patterns of upside and downside moves to come. The SOX is very good for these. Moreover, they do it intraday as well, and we can play the day and the trend over several days. Talk about flexibility in a choppy market!
Playing the indexes for the most part means playing options. But index options are so liquid you usually have no trouble getting in and out of them. Indeed, even if there are very few open interests (something we are seeing in the recently issued October options on several of the indexes), you don't have as much market maker shenanigans because there is such a ready market. We can get good, fast trades pretty much when we want them.
There are many things to like about playing the indexes. We cover this strategy in detail in our seminar series. As this writer indicates, there is a lot of money to be made in the market even in these times. The key is knowing what to play and how to play it. We teach you this in our seminars.
TEAM TRADES
PII, makers of Polaris 4-wheelers and waverunners, was in the handle of a cup base and after making a good move Friday, took a break Monday but today made its breakout move. The stock hit an early high (50.16) after opening at 49.50, right at its 10 day MVA. It had dropped back to 50 where it was crawling laterally on decent volume (as yet below the average of 76,000, coming in at 60,000). The previous day's volume had closed at 51,000, so that was looking pretty good. Breakout volume was in the range of 114,000.
At 11:25 CT the stock made a move, gapping higher to 50.20 and running to 50.35 on a surge in volume; it tested 50.20 and then bounced. It then raced up to the buy point at 50.63 while volume was very heavy. The alert was issued, and we watched the stock run to 50.80. It stalled a bit there and we put in a buy limit at that level as volume dropped off the map (good for a lateral movement). That did the trick. About 20 minutes later the stock jumped up and ran go 51.36. That did not last and it sold back down to close at 50.90 on a great volume day. Not bad at all. Now we see if we can capture that move to 56 to 58.
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
Investment House subscribers are offered a special from eSignal for those interested in a realtime service. Contact:
Jeff Whitney
Account Executive
800-322-1875
Office hours 6:30-3:30 PST
www.esignal.com
Good Investing!
Jon L. Johnson and the Technical Traders Team
All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Online Investment Services, LP or its paid consultants and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. We are not licensed or registered in the securities industry. The information presented herein and on our related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolio of Partners of Online Investment Services, LP or its paid consultants may, in some instances, include securities mentioned herein and on our web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors.
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world stock market
us stock market
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