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online trading, day trading
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12/21/04 Technical Traders Report Update
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Technical Traders Report Subscribers:
Full reports issue Monday, Wednesday and Saturday.
**Christmas week schedule:
Market closed Friday.
Monday through Wednesday: Reports as usual
Monday 12-27: Reports resume as usual. Will issue alerts Monday on any new plays we find hitting buy points.
Alerts will issue as usual on all market days.
**
MARKET ALERTS
Targets hit alerts issued Tuesday: None issued
Buy alerts issued: CYT; AMMD
Trailing stops issued: None issued
Stop alerts issued: FRGO
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:
- SP500, DJ30 move through next resistance as holiday rally tries to reassert itself.
- European economic growth remains pitifully weak.
- Small caps emerge to lead again, NASDAQ bounces from 18 day EMA. On the cusp of a good move.
- Trend reasserts itself on quiet news day. Now we see if there are any legs.
Stocks show bullish bias once again, fighting off morning dip to rally into the close.
'The market' hit a 3.5 year high today according to many financial pundits. They are referring to the DJ30, but it is very hard to call those 30 stocks 'the market', at least if you are trying to be anywhere near accurate. Yes DJ30 broke through the 2004 high and SP500 once again moved back through 1200, the latter doing so on some better (barely) trade. It was good to see the DJ30 joint the party (something NASDAQ has not done, at least with respect to holding the move), but those two indexes have not shown leadership. They can move and the broader market languishes.
What we were more excited about was the move in the small and mid-cap stocks. They look to be making higher lows here and moving to new highs. NASDAQ bounced where it had to as well, moving off the 18 day EMA. That index still has work to do, but again, it did what it had to. When the small caps and NASDAQ are moving, the market moves as well. Tuesday saw all indexes gaining, and despite the crowing about DJ30 moving to a new 2004 high we note that DJ30 and SP500 lagged the other indexes. No complaints, just fact as to how the market had performed this year. Even with the large caps breaking higher as they needed to do they still lagged the rest of the market.
So much for nitpicking. Overall the move was solid. Volume rose on NYSE, indicating some accumulation after the lower volume selling Monday. Volume was only slightly lower on NASDAQ. Modest accumulation at best, however, as volume overall was well below recent levels. Breadth surged, giving upside breadth the distinct advantage. Stocks fought off an early dip and rallied to close at session highs. The upside trend reasserted itself. Thus there were many positives in this move even if NASDAQ did not once more clear the top of its base. Given that the market is one day closer to a holiday on a holiday week, it was not bad action at all.
THE ECONOMY
European Union growth misses expectations.
Q3 Euro zone GDP rose 0.3%. For a world economy in recovery, that is a fairly pathetic growth rate. When you consider expectations were for just a 0.4% growth rate, however, you realize just how slow things are in Europe. Weighed down by overregulation (the number of regulations actually increased under the EU versus all the regulations of the individual countries prior to creation) and oppressively high worker benefits (pay, vacation, healthcare, etc.), and high tax rates the EU cannot get its economies rolling. Japan has been in a 12 year depression and its growth at 2.8% is eight times Europe.
There are many reasons not to get too lathered up about the dollar decline versus the euro as we have discussed the past month, but one specific to the euro is the Euro zone economic growth. With the US growing at 4% or better and expected to do that well in 2005, the growth factor will put a limit on how far the dollar ultimately falls. As we have discussed in previous issues, the dollar is, on historical terms, still above its 30 year average versus the German marc. It could easily slide lower in a market where the dollar is trending lower, but ultimately the US versus Europe economic growth differential will work to stem the losses and put the dollar and euro in equilibrium commensurate with the economic growth rates.
Different reports parsing retails sales create confusion in a solid retail season.
Looking at the headlines about the holiday sales season and you conclude it is another mediocre holiday season showing some growth but nothing major. The problem is what is being measured. As an investor looking at sales, we look at overall sales. We don't really care where they occur (chain stores, online stores, street vendors), just that they occur and the money is moving through the economy. That is what helps drive economic growth.
Thus when you see the Tuesday headline about one sales report showing gains and another showing drops, you conclude the data is mixed and the season is so-so-so. The ICSC/UBS report stated sales rose 1.6% for the week versus 1.2% the prior week. That was a 3.5% increase year over year (2.4% year/year the prior week). A very good showing for chain store sales growth. Redbook reported that chain store sales fell for the third consecutive week, dropping 0.7% from November and just a 2.1% year over year gain.
The key is in the finer details. The Redbook report stated that strong online sales and that gift cards were shifting sales into the next period. Ah. Chain store sales are suffering from sales in other areas. Sales are not down, just where they occur is shifting. That is no surprise, but in all of the moaning about how sales are down or less than hoped for at some stores, overall sales are, dare we say it, strong. Recall that if sales kept pace with early levels sales were expected to rise 7+% over last year. That is much better than the 4% to 4.5% best case scenario often cited. From what we hear, sales are strong. Gift cards might not be counted now, but they are sales.
THE MARKET
Lots of talk about that multiyear high on DJ30, but the important move was the small caps making a higher low and leading the market higher as well as NASDAQ making a higher volume bounce off the 18 day EMA. Neither hit a new high for the year, but they made important moves that allowed SP500 to clear 1200 and DJ30 to break from its 2004 base.
The move was not the terrific event it was made out to be. It has been a long time since the financial stations could trumpet some kind of milestone, so it was worth some dramatic headlines and received top billing in the news ticker scrolling across the screen.
We were happy to see the small and mid-cap move along with NASDAQ moving up off the 18 day EMA on some better volume. It was not the breakout, not the big move, however. That is why we are saying the market is on the cusp of a good move. Leaders were running well Tuesday though volume was light on many of the moves. After hours they continued to look solid. This bodes well for the run into Christmas and then New Years.
Market Sentiment
Bullishness remains high, volatility as measured by VIX and friends remains low. They have caution flags out, but as we have discussed before, they make pretty lousy market timing devices. Recall that several times in 2004 it was lamented on the financial stations that volatility was at extremely low levels and how this was a danger sign for the market? Volatility can remain at low levels for long periods before any correction occurs. Moreover, volatility at current levels is still higher than it was during 1994 and 1995. The current volatility levels and sentiment levels continue at extremes and keep us watching price/volume action closely for weakness. That is one reason a break higher here on stronger volume is key.
VIX: 11.55; -0.28
VXN: 16.94; -1.27
VXO: 11.52; -2.09
Put/Call Ratio (CBOE): 0.79; -0.11. That higher reading to 90 on Monday may have been the push the rally needed to resume.
NASDAQ
Volume faded slightly but was still above average as NASDAQ moved off the 18 day EMA, trying to make a higher low. Still needs to deliver the breakout.
Stats: +23.06 points (+1.08%) to close at 2150.91
Volume: 2.002B (-0.38%). Another 2B share session but volume was lower as NASDAQ moved off the 18 day EMA. Not the strong response we wanted to see, but given the holiday week volume may be harder to come by. A good start to the rebound but we will need to see higher volume on a move through 2154.
Up Volume: 1.479B (+864M)
Down Volume: 484M (-815M)
A/D and Hi/Lo: Advancers led 1.84 to 1. Not bad breadth, topping the Monday downside move. On a breakout we want to see that in excess of 2:1. Breadth has lagged on the prior moves higher this month; a shift to strong breadth would indicate a move with more staying power.
Previous Session: Decliners led 1.71 to 1
New Highs: 173 (+29)
New Lows: 23 (+6)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Bounced off the 18 day EMA (2127), coming up for air after the three previous downside sessions. Volume was the lowest in over a week so it was not a session to wash away the prior distribution days earlier in the month. It was the potential beginning to the next move higher, and it will need to show the breakout on stronger volume. We don't require blowout trade given the holiday week, but we need to at least see leaders moving on strong volume.
Gapped higher and rallied to hold the 18 day EMA as well. We note QQQQ volume was much lower versus the Monday selling.
SOX managed to bounce off the 50 day SMA and move back up to some resistance at 425. The key for SOX will be moving through the 200 day SMA (433.02) on the next rally attempt.
SP500/NYSE
Broke back through the 1200 level on rising but still below average volume. No blowout session, but a good recovery after the higher volume selling last week heading into expiration.
Stats: +10.8 points (+0.9%) to close at 1205.45
NYSE Volume: 1.49B (+1.47%). Volume perked up on the rebound session but it was by no means convincing. Lighter holiday volume may be the culprit, but we would like to see at least above average volume on a further move to give the move some strength.
Up Volume: 1.161B (+490M)
Down Volume: 304M (-420M)
A/D and Hi/Lo: Advancers led 2.54 to 1. Very nice breadth as the large and small caps joined the advance.
Previous Session: Decliners led 1.02 to 1
New Highs: 283 (+39)
New Lows: 10 (-2)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Back over 1200, setting the stage to try for a new 2004 high (1207.97) Though not great, volume was up and SP500 made a higher low, holding the 10 day EMA. This looks to be the move that launches it on its next run, but it will need a bit more volume and help once more from NASDAQ to make the move and make it stick. Next resistance at 1215.
The small caps could not quite break through 325 to a new high, but a series of higher lows below that constant top has built pressure for just that move. Looks quite positive for a breakout here and surge toward year end.
DJ30
The blue chips made the much heralded move over to a new 2004 high, clearing 10,754. Volume could not advance with the index as it too suffered from the holiday trade. It has joined the party, and that helps the overall market in a holiday rally.
Stats: +97.83 points (+0.92%) to close at 10759.43
Volume: 294 million shares Tuesday versus 298 million shares Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Second to last trading session of the week with Q3 GDP revisions and oil inventories as the scheduled news items. Of the two oil is the one with the most potential to move the market unless GDP is quite different from the 3.9% expected. Inventories were lower than thought this month and that will take away from GDP. Imports were lower as well (that trade gap narrowed), and that will add to the GDP. It may be a wash, but 3.9% is nothing to sneeze at and sets up a good Q4.
Volume was lower on NASDAQ and DJ30, and it was no great shakes on SP500, but the trend started to reassert itself after a wilder week that had expiration and the Russell rebalance to deal with. The market looks ready to continue the Christmas rally, but as noted, it is on the cusp. It has been repelled before. We like the return of strength in the small and mid-caps and NASDAQ is set up to make the higher low and make another attempt at 2154. Leaders are coming off of their recent tests, ready to lead the market higher once more. We anticipate that continued move Wednesday. A bit more volume would be a nice bonus.
Support and Resistance
NASDAQ: Closed at 2150.91
Resistance:
January high at 2154 (early 2004 high).
2250 - 2260 from January/February 2001 highs and lows.
2282 from 5-2001 high.
Support:
The 18 day EMA at 2127.88
2110 - 2112, the top of the November consolidation.
Price support at 2090.
The April high at 2079
The 50 day EMA at 2065
2050, prior resistance and the June high.
S&P 500: Closed at 1205.45
Resistance:
1200 acted as resistance on the last trip higher.
Q1 1999 lows at 1215
October 1999 low at 1233
Q2 2001 peak at 1310.
Support:
The 18 day EMA at 1191
1180 to 1185, the top of the November consolidation range.
1175 second high in that double top that spanned late 2001.
The 50 day EMA at 1168.26
January highs at 1158
1142-1146 are the June highs and the October high (1142).
Dow: Closed at 10, 759.43
Resistance:
10,975 - 11,000 from Q4 2000, Q1 2001
11,350 from the May 2001 highs
Support:
10,754 is the February high
Price consolidation at 10,600 level
10,570 is the early April high
The 18 day EMA at 10,596
The late April, June peaks at 10,478 to 10,512
10,400, the bottom of the recent range.
The 50 day EMA at 10,428
September high at 10,342
The 200 day SMA at 10,240
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
December 20
Leading Economic Indicators, November (10:00): 0.2% actual versus 0.1% expected and -0.4% prior (revised from -0.3%)
December 22
GDP-Final, Q3 (08:30): 3.9% expected and 3.9% prior
Chain Deflator-Final, Q3 (08:30): 1.3% expected and 1.3% prior
December 23
Durable Goods Orders, November (08:30): 0.7% expected and -1.1% prior
Personal Income, November (08:30): 0.2% expected and 0.6% prior
Personal Spending, November (08:30): 0.3% expected and 0.7% prior
Initial Jobless Claims, 12/18 (08:30): 335K expected and 317K prior
Michigan Sentiment-Rev., December (09:45): 95.7 expected and 95.7 prior
New Home Sales, November (10:00): 1200K expected and 1226K prior
End part 1 of 2
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