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world stock market, us stock market
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12/14/04 Technical Traders Report Update
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Technical Traders Report Subscribers:
Full reports issue Monday, Wednesday and Saturday
MARKET ALERTS
Targets hit alerts issued Tuesday: None issued
Buy alerts issued: MNST; WITS; WMS; CERN
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:
- Stocks overcome mixed economic data, Fed hike, continue rally at a modest pace.
- Fed hikes rates, leaves statement unchanged, disappoints some, surprises no one.
- Holiday melt up continues without any real zing.
- Can the market get down to a real surge into the New Year?
Moving together now but no explosive moves.
Monday we were still concerned about the indexes showing mixed strength as it moves higher. Tuesday volume was up on both NASDAQ and NYSE as all major indexes showed upside moves. Volume shows more buyers moving in, always a good sign, but the move upside was still modest with modest breadth and scattered strong moves.
All things considered, however, it was a pretty decent session. NASDAQ broke from its 2004 base on rising volume, SP500 cleared some pesky resistance on rising volume, both steps exactly what the market needed to continue the move. The Fed hiked rates, the trade gap widened, oil rallied. Despite that, stocks rallied early, rested, then rallied more the entire day. Again, not bad action.
The move was very subdued; you could call it a stealth rally, but there were enough stocks of repute that were not joining in to make the move look so-so. Breadth backed this up with a modest 3:2 advance/decline line. Some stocks rallied early and gave the move back. Some rallied late and managed to hang on. Stocks tried a late spurt but then gave most of it back in the last hour. In short, one stock would give, another would take. The result was modest gains on rising volume, a decent move but not a great move.
As the market rises into Christmas and year end, that may be the type of action we see: momentum higher but not a ton of conviction. As we figure the rally will take a break after the first of the year, we suppose it doesn't really matter what the move looks like on the way up. As we used to say in baseball league, even a bloop hit looks like a line drive in the play book. Right now the market is making a few bloop hits, flares, ground balls with eyes, etc. as it climbs toward the holidays. Would love to see a deep drive to the power alley to really get things rocking.
THE ECONOMY
Fed raises Fed Funds rate 25 basis points to 2.25%.
As surely as the clock on the wall will hit 12 noon, the Fed raised interest rates Tuesday, citing the same litany of economic conditions warranting such a move: output growing moderately, labor markets improving gradually, inflation well contained and expected to remain relatively low, upside and downside risks roughly equal. In short, no change. Thus there was no change in the trek to remove the policy accommodation at a measured pace.
Some were again hoping for a hike and a pause, but the Fed, bent on getting rates near 3% showed no inclination of pausing other than the occasional unintentional mental pause they take when deciding what causes inflation. Morgan Stanley is looking for a pause after 2.5% given their view on the economy being basically a mime of Japan in 2005. Maybe that will happen, but the Fed has 3% in its mind, and it usually overshoots first and asks what the hell happened later.
Investors were not dissuaded from buying stocks, however, apparently viewing the Fed rate hike as necessary to sustain the recovery. Indeed, the market has performed quite well of late despite the rate hikes. Still we note that stocks slipped into the 2004 base shortly after the Fed started its rate hiking campaign. The rally that started late summer may have anticipated the Fed slowing down, but thus far the Fed has not and the rally, for the most part, has not. It did, after all, rally again after the Fed decision. The Fed has apparently not yet raised rates to the point of economic pain where the market senses an economic slowdown to come. Given the Fed's history, it will get there. We can always hope that Morgan is right and the Fed will pause at 2.5%, but we also know that hope rhymes with dope.
Trade deficit hits another record.
-$55.5B versus the -53.0B expected. Just a silly $2.5B larger than expected. The major areas of imbalance: OPEC countries and China which refuses to disconnect the yuan from the dollar. All this does is merely continue the debate about trade deficits and dollar values. After all of the print and words about the situation, the one thing we can take from this is the potential for some more inflation down the road. The dollar value falls and thus foreign goods become more expensive. That is considered a form of inflation because it costs US consumers more dollars to buy the same thing. That is not the sole reason we could see inflation. As discussed before, demand has outstripped supply in this recovery because supply incentives were too late in coming for businesses that were already and continue to be gun-shy regarding ramping up production and hiring in order to create sufficient inventories. Thus there is this continued pressure on prices that is not going to abate all at once, particularly as the economy continues to grow. It will be incremental as businesses get more and more comfortable creating more goods and hiring more employees.
Business optimism hits record.
Maybe they will. The new Manpower survey shows an increase in CEO's ready to hire in the months to come. Further, the most recent small business survey shows optimism at a 20 year high. Let's see, twenty years puts us back to 1984 when the Reagan tax cuts had kicked in and launched a massive wave of US investment that propelled us to the incredible 20 year prosperity run. Small businesses were born by the hundreds of thousands out of that economic plan, and despite the current situation naysayers that are always present, the same is happening now. Moreover, the small businesses had some important tax breaks extended. There is reason for their optimism, and that bodes well for more US investment in 2005 that could keep the economy going stronger than expected.
US citizen wealth hits all time high.
Along with business optimism we see consumer optimism at quite decent levels. Even when it has dipped, consumers have continued to grow their spending this year. It is a fact that when US consumers are confident they spend and the spend on both foreign and domestic goods. This month it was foreign cars being snapped up despite the falling dollar leading to higher prices. Consumers want them and are confident enough about buying them. Look at US wealth and you start to get an insight as to why consumers are buying. In Q2 2004, Americans' net worth hit $45.91 trillion, the highest ever, even higher than 1999 that set the previous record. Big gains in mutual fund holdings and real estate has led the way, but the result is the same: Americans feel good about their recoveries and they are spending.
Who holds our dollars?
That continues the current order for most of the world: producing products for US consumers to buy. Many world economies are geared on US consumption. That is one major reason they are more than willing to support any trade imbalance by turning those dollars right back into the US with Treasury purchases. You see, there is there is this myth running around that a bunch of investors are one day going to decide they don't want to hold US dollar investments anymore and will pull out. With the US posting one of the best economic growth rates in 2004 and ready to do so again in 2005, economies such as the EU and Japan, both growing well below 3% and threatening to go lower, they won't attract a lot of investment in economic output. Speculation in currencies, yes; real investment, no.
The truth is foreign governments hold most of the dollars outside the US, buying treasuries to keep their currency in line so that they can avoid economic slowdown and still keep their goods priced right for US consumers. Those governments want their domestic businesses to succeed just as much as the business owners, and thus they are more than willing to hold US dollar investments and even buy more dollars to maintain a favorable exchange rate to keep that US consumption humming.
THE MARKET
Volume picked up as NASDAQ and SP500 cleared near resistance in their recent ranges, NASDAQ breaking out of the 2004 base. Good to see that rising trade on that move as it shows buyers moving in with more force. It was still a modest session, however, with modest gains on modest breadth. Yes gains were posted, but there lacked zip (a technical market term). One of our traders in the office, a bit frustrated after no big breakout asked 'is this as good as it gets?"
Well, the answer may just be yes. We are in a holiday season between Thanksgiving, Christmas and the New Year. Many times you get a rally that is more of a drift higher or a melt up. This one has higher volume, so you can say there is more conviction behind it, just as it appeared Tuesday. That high volume this month with little headway and some choppiness on NASDAQ has caused us some concern. A clean, hard break higher would alleviate that, but it appears our lot in life, as it is with every market investor, is to constantly gripe about the moves being made. When we stop griping, then there is real reason to fear catastrophic events. Given the level of gripe, this rally should carry easily into Christmas.
Market Sentiment
VIX: 12.73; +0.19
VXN: 18.58; -0.2
VXO: 13.45; -0.1
Put/Call Ratio (CBOE): 0.77; +0.05
NASDAQ
Broke higher, taking out the top of the 2004 base on stronger volume with a new closing high. It needed this move but no major breakaway move.
Stats: +11.34 points (+0.53%) to close at 2159.84
Volume: 2.26B (+8.04%). Over 2B again with volume rising on another gain and the break past the January 2004 high. Good volume but we note that the price move was so-so and volume has been very strong this month as the index was up and down. This break higher on volume was needed, but it has not answered the questionable price/volume action earlier in the month.
Up Volume: 1.239B (-257M)
Down Volume: 944M (+430M)
A/D and Hi/Lo: Advancers led 1.52 to 1. No big deal here.
Previous Session: Advancers led 1.64 to 1
New Highs: 147 (+9)
New Lows: 17 (+7)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Broke through the January 2004 high, making a new closing high for the year and all the way back to 2001. This is the move that was needed but it was no clear blast off. NASDAQ has rebounded from the stronger volume selling last Tuesday but volume, though rising the past two sessions, is lower than that prior trade where the index bounced up and down. High volume volatility is not a good sign; it showed that action last January when it peaked. It has to show continued solid volume upside gains. A bit more breadth would help.
NASDAQ 100 posted a 0.4% gain versus NASDAQ's 0.5% move. Even though large cap techs lagged a bit, breadth overall was weak. On a breakout we would like to see more stocks joining the move.
SOX rallied back to tap the 200 day SMA (434.92) on the session high before sliding back to the close though not far back. Good recovery and we will see if, once more, it can take out the 200 day and help spark a further rally in the overall market.
SP500/NYSE
Cleared near resistance at 1200 on stronger, above average volume. Finally getting some volume on the move but no blowout.
Stats: +4.7 points (+0.39%) to close at 1203.38
NYSE Volume: 1.57B (+7.33%). Volume rose back above average finally after lagging woefully as SP500 moved up from the bottom of its range and toward the breakout. It needed more volume on the break through 1200 and it got it. Still below the early month volume, but unlike NASDAQ, SP500/NYSE did not have the very high volume on the volatility earlier in the month. Continued strengthening trade on a further rise would be very good medicine for a continued rally.
Up Volume: 982M (-74M)
Down Volume: 526M (+164M)
A/D and Hi/Lo: Advancers led 1.63 to 1. Small and mid-caps led the market, but breadth was still so-so.
Previous Session: Advancers led 2.24 to 1
New Highs: 272 (+32)
New Lows: 13 (-3)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Broke through 1200, what was psychological resistance that turned into more. SP500 had already broken out of the 2004 base and this lateral move the past four weeks was a consolidation of that move. Much better consolidation than NASDAQ as it avoided the high volume distribution and volatility on NASDAQ. That makes its lateral move a better set up for this break higher. Volume could be better, but it has been solid on the Thursday reversal off 1175 and then the break higher today.
The small caps were solid, posting a 0.7% gain. Mid-caps enjoyed a 0.9% gain. Excellent leadership again as they continue their uptrends. Second test of the November breakout looks to be a success. Important components of the current rally.
DJ30
Wow. Volume was sharply higher, matching volume early in the month as the blue chips extended the break through resistance at 10,600 and approaching the top of the 2004 base at 10,705. The slumbering large cap index looks as if it has awakened, the last major index that has not made the breakout from the base. Might see the break higher and then a rest after this run (already 300 points).
Stats: +38.13 points (+0.36%) to close at 10676.45
Volume: 303 million shares Tuesday versus 257 million shares Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Slow economic day with the New York Empire State PMI before the open. Thus stocks will be on their own more or less and we will see if the NASDAQ and SP500 breaks higher have staying power and can put some distance between themselves and the breakout point before the next rest. That way they can come back and test those former resistance levels and be in better position to resume the move once the test is over.
The Tuesday move was somewhat frustrating as stocks moved higher but breadth was modest at best. After a flash of strength to start the month, the indexes have started and stopped several times. They are finally making the break, but Monday and Tuesday failed to wow anyone. As noted, however, a holiday rally can rally without any one strong move. It puts together a few points here, a few more there, a bigger day, then a smaller day, and before you know it, stocks have moved up well.
Thus as usual, despite the gains the market remains one where individual stocks are the key. Perhaps that will change with a further rally. For now we continue to look at leaders that have pulled back to test their moves as fertile grounds for further upside gains. The rally has been ongoing for NASDAQ since August, so many leaders have already broken out, and their tests of their moves offer the best entry points for the early leaders. That does not mean we automatically rule out stocks currently building a base and ready to breakout for the first time; if the underpinnings are solid we won't turn our back on it.
Support and Resistance
NASDAQ: Closed at 2159.84
Resistance:
2250 - 2260 from January/February 2001 highs and lows.
2282 from 5-01 high.
Support:
January high at 2154 (early 2004 high).
2110 - 2112, the top of the November consolidation.
The 18 day EMA at 2116
Price support at 2090.
The April high at 2079
2050, prior resistance and the June high.
The 50 day EMA at 2048
S&P 500: Closed at 1203.38
Resistance:
Q1 1999 lows at 1215
October 1999 low at 1233
Q2 2001 peak at 1310.
Support:
1200 stopped the last move.
1180 to 1185, the top of the November consolidation range.
The 18 day EMA at 1184
1175 second high in that double top that spanned late 2001 is trying to hold.
January highs at 1158
The 50 day EMA at 1161
1142-1146 are the June highs and the October high (1142).
Dow: Closed at 10, 676.45
Resistance:
10,747 is the February high
10,975 - 11,000 from Q4 2000, Q1 2001
Support:
Price consolidation at 10,600 level
10,570 is the early April high
The 18 day EMA at 10,522
The late April, June peaks at 10,478 to 10,512
10,400, the bottom of the recent range.
September high at 10,342
The 50 day EMA at 10,369
The 200 day SMA at 10,237
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
December 13
Retail Sales, November (08:30): 0.1% actual versus 0.0% expected and 0.8% prior (revised from 0.2%)
Retail Sales ex-auto, November (08:30): 0.5% actual versus 0.3% expected and 1.1% prior (revised from 0.9%)
Business Inventories, October (10:00): 0.2% actual versus 0.5% expected and 0.0% prior (revised from 0.1%)
December 14
Trade Balance, October (08:30): -$55.5B actual versus -$53.0B expected and -$50.9B prior (revised from -$51.6B)
Industrial Production, November (09:15): 0.3% actual versus 0.2% expected and 0.6% prior (revised from 0.7%)
Capacity Utilization, November (09:15): 77.6% actual versus 77.8% expected and 77.5% prior (revised from 77.7%)
FOMC Meeting, (2:15): 25 basis point rate hike to 2.25%. No change in statement or removing policy accommodation at a measured pace.
December 15
NY Empire State Index, December (08:30): 20.0 expected and 19.76 prior
December 16
Housing Starts, November (08:30): 1980K expected and 2027K prior
Building Permits, November (08:30): 2010K expected and 2018K prior
Current Account, Q3 (08:30): -$171.0B expected and -$166.2 prior
Initial Jobless Claims, 12/11 (08:30): 342K expected and 357K prior
Philadelphia Fed, December (12:00): 20.5 expected and 20.7 prior
December 17
CPI, November (08:30): 0.2% expected and 0.6% prior
Core CPI, November (08:30): 0.2% expected and 0.2% prior
End part 1 of 2
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world stock market
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