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us stock market, trade stock
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12/28/04 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: OSTK; HELE; CSTR; JUPM; HOLX; WYNN
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 don't wait to resume rally, use midday consolidation to surge to the close.
- December consumer confidence soars on lower oil prices.
- Japan unemployment hits 6 year low, Nikkei still rallying despite low CEO optimism. Sounds familiar.
- Holiday rally continues on some better volume and leadership, though the real action was in the last hour.
- Breakout from 2004 base continues, setting up an interesting start to 2005.
Stocks resume rally, show much stronger attributes.
Stocks started higher and unlike Monday, they did not collapse into the close. SP500 rallied close to resistance once more and faded back into a midday consolidation. Shades of Monday, but as we noted in the alerts, the underpinnings were much stronger with the small caps leading some strong breadth readings and the indexes easily holding the early session gains. Instead of using the consolidation as a table to roll off of, stocks used it as a springboard into the final hour, rallying to close at session highs. Volume rallied a bit in the last hour as well; it finished still low overall, but topped the Monday trade. Basically stocks did the flipside of Monday, rallying in the last hour as opposed to giving in.
There was not much different on the news front from Monday, at least as far as oil prices (still below $42/bbl) and retail news (chain stores sales jumped 4.3% year/year). The market was already up, but it received a super charge from December Consumer Confidence that topped 100 and beat expectations by 8 points. That sent stocks surging.
That surge stopped at a familiar spot, however, with SP500 rallying close to 1215 resistance but not further. NASDAQ managed to move through some pesky resistance at 2170, but it faded along with SP500, giving up that move midday. The confidence and generally good news regarding retail, however, kept the buyers in the game Tuesday, and as noted, buyers used the good news as the impetus to buy into stocks again after the sellers were unable to push them lower in the afternoon. That sent NASDAQ, SP500, DJ30, SP600 and SP400 (mid-caps) to new closing highs for the year, for several years, and in the case of the small and mid-caps, forever. Nice way to approach the end of the year, and when you think that most money managers are on holiday and you look at the piles of cash stacking up to go into the market, well, the new year could start pretty strong.
THE ECONOMY
Confidence reverses a 4-month decline.
Lower gas prices and even jobs helped fuel a much better than expected bounce in confidence. 102.3 versus 94.0 expected, and November was revised higher to 92.6 from 90.05. Current conditions rose to 105.9 from 96.3. Expectations climbed to 99.9 from 90.2. Solid gains. Employment outlooks were better with those saying jobs were plentiful rising to 19.4 from 17.1 while those saying jobs were hard to get fell to 26.4 from 28.0.
All in all the gains were solid across the board. As noted, this sharp rise reversed a 4 month decline, but we also have to recognize that the prior four months, even with the decline were still well above levels where one would expect confidence to impact buying. This boost in confidence above 100 simply keeps the consumer deep in the game heading into 2005. Thus even if there is the expected drop in business buying during the first couple of months after the late 2004 buying to take advantage of expiring bonus depreciation the consumer is there to pick up the slack.
Chain store sales show strong gain heading into Christmas.
The UBS survey showed a nice bump the last week ahead of the holiday. Sales rose 2.7% over the prior week, continuing the buildup from the prior month that saw increasing sales each month. Year over year sales surged 4.3% for the week, continuing the dominance over the 2003 results. With the strong surge seen in credit card sales (a.k.a. internet sales), this was a strong season.
Many are looking at the rising Visa and MasterCard sales results as a problem in the form of an overextended consumer. Visa sales were up 32% while MasterCard posted the highest number of transactions ever for the November to December shopping season. That has the more pessimistic claiming the consumer is deep in hawk and that is only going to make 2005 miserable as the consumer has to stop buying, personal bankruptcies rise, and the sky falls.
Depending upon where you get your news you could very easily believe that the economy was ready to head into a major slowdown. We do believe business spending will lag early in the new year, but signs of growth are evident in many other areas. With an economy that is still rising into the new year and following a stock market whose recent breakout is forecasting better times ahead, these predictions of utter doom for the consumer and thus the economy are a bit much just as one pundit's statement that the economy is 'in tatters' is a bit ludicrous.
As discussed Monday, those seeing the rise in credit card charges as an ominous sign refuse to acknowledge that the retail landscape has changed. The financial stations still talk about an internet bubble that has reflated when they talk about EBAY, GOOG, YHOO and other internets that are making money. They have flipped back to the pages covering 1999 and 2000 and simply assume that an internet company cannot make money. Well, that whole 2000 to 2002 sell off was the shakeout where the strong survived and most others disappeared from the landscape (oh where is Pets.com and that damn sock dog?). Those that survived had the business and the right plan. Internet sales continue to grow faster and faster as broadband and the acceptance of net transactions rises. You don't pay for net purchases with a check and most people only deal with sites that accept credit cards as a way to maintain leverage with the vendor if the sale goes awry. It makes great sense to see these sales surge with the acceptance of web buying.
Fed rate hikes still the biggest piece of the puzzle.
Again, the big issue confronting the economy and the market (in inverse order) is how aggressive the Fed remains with interest rates. The market spent most of 2004 moving sideways as the Fed started its rate hiking. It is just now breaking out as it looks into 2005. That bodes well for the economic future, but if the Fed gets overly aggressive and/or tries to use interest rate policy to tackle the trade gap or other such nonsense, then we are in for trouble. Monetary policy controls interest rates, not the deficit (trade or budget), and thus what we have to fear is a Fed that reverts once more to its 'we know better than the markets' mentality. So far it looks only as if Greenspan is pressuring to get reform on social security and federal spending on other entitlements. Hopefully Congress will act and deliver some.
Japan continues to show mixed economic signals (at best), but the Nikkei continues to climb.
Japan business investment is still falling, CEO's remain pessimistic, and GDP continues its pitiful growth rate (at least it is growing). Then you see unemployment falling to 4.5%, a six year low. Employment is a lagging indicator; with the rest of the economic indicators weak one has to wonder just what this means. What is clearer is the rise in consumer consumption. With business investment still lagging, Japan could have some of the same problems we are experiencing brought on by a consumer that strengthened much more quickly than the business side.
On the other hand the best indicator, the stock market, continues its improvement. It has become a bit rocky of late, but appears to be resuming its advance. Sounds somewhat familiar to the US market. As we saw in 2002 and early 2003 for the US, however, the stock market was the leading indicator. CEO sentiment was poor, but it is usually poor until things are good. That is exactly what happened on this run in the US. If the Nikkei resumes its upward trajectory that bodes well for the Japanese economy.
THE MARKET
SP500 still is not over 1215, but it is in a steady uptrend along the 18 day EMA ever since the strong breakout in early November from the 2004 base. Tuesday it made a new closing high for following the breakout. Volume was a joke, but it was higher than Monday and last Thursday; there is something positive stirring there.
There is also something positive stirring in the small and mid-caps. There was some question as to their loyalty to the rally, but they pushed that aside Tuesday as they moved to new all-time highs, leading the market with a nice show of strength. That pushed breadth to the strongest levels in quite some time, easily popping over 2:1.
Given that it was a holiday light session the action was very good. We opined that the market would take another day of rest before resuming the move, but it is in a solid uptrend, and it received some news it took to be very positive. That news spurred stocks higher in the trend. SP500 still needs to clear 1215 with some authority, i.e. continuing rising trade, to give us more comfort. Until then, however, this action was pretty reassuring.
Market Sentiment
VIX: 12; -0.14
VXN: 17.79; -0.54
VXO: 12.31; +0.15
Put/Call Ratio (CBOE): 0.69; -0.15
NASDAQ
After holding its ground into the close Monday and reasserting some strength, NASDAQ posted one of the better gains Tuesday, breaking to a new 2004 high on rising though still quite low volume.
Stats: +22.97 points (+1.07%) to close at 2177.19
Volume: 1.597B (+7.44%). Volume 'surged' as NASDAQ broke to a new 2004 high. Trade remained well below average (average is just under 2B), but it did rise with the buying, particularly in the last hour as stocks kicked it home.
Up Volume: 1.002B (+285M)
Down Volume: 575M (-174M)
A/D and Hi/Lo: Advancers led 2.68 to 1. Excellent breadth, the best in a month shows the large and small cap techs were working together.
Previous Session: Decliners led 1.36 to 1
New Highs: 192 (+40). Not very impressive given the new high for the year.
New Lows: 9 (-1)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
A new high for 2004 on some rising volume, clearing some interim resistance at 2170. It was no explosive move higher but it was a clean move away from 2154 that stalled the index for most of December. NASDAQ needed to make the break higher, and though volume remains low overall, given it is a holiday week it was solid enough. You have to take the move for what it is: a holiday rally that is moving with the trend in the absence of many of the fund managers whose cash holdings are the real movers of the market. We don't want to get too carried away with visions of a massive rally, at least until we see what the big money does when it comes back after year end.
NASDAQ 100 did not fare as well. It rallied but still has not come close to clearing the December high (1635.70) as it continues its month-long lateral move. Still setting up well for the break higher and the next leg up.
SOX tested the 50 day EMA (421.47) on the low and rebounded once again. It is still being pinched between the 50 day and the 200 day SMA (431.91), still trending lower below the 200 day. It has been unable to make a higher high since the early December peak near 450. If it could put together a definitive break above the 200 day that would add even more substance to the rally.
SP500/NYSE
The large caps did not break 1215 resistance, but managed a new closing high for the year on some rising volume as the trend up the 18 day EMA remains firmly in place.
Stats: +8.62 points (+0.72%) to close at 1213.54
NYSE Volume: 982.786M (+6.8%). Rising volume, topping the Friday and Monday levels as SP500 moved off the 10 day EMA and continued the trend higher following its November breakout.
Up Volume: 782M (+457M)
Down Volume: 177M (-395M)
A/D and Hi/Lo: Advancers led 2.82 to 1. Outstanding breadth as the small caps added the missing ingredient to the rally to this point. Excellent action and what you want to see as both the SP500 and SP600 moved to new highs.
Previous Session: Decliners led 1.58 to 1
New Highs: 266 (+28). Not bad but not the 400 to 500 levels seen in the November move. Want to see this improve dramatically as the climb continues.
New Lows: 21 (+14)
The Chart: http://www.investmenthouse.com/cd/^spx.html
New closing high for 2004 even though it could not take out 1215, the level that has held it in check the past few sessions and the next serious resistance level. SP500 looks ready to make a serious attempt, however, as it immediately shook off the Monday selling attempt and responded with a stronger volume gain. This is a nice uptrend over the 18 day EMA (1197.74), and the fact that it resumed so quickly after a selling session demonstrates its strength.
New all-time high once more as the small caps answered whatever concerns we had about its ability to continue the climb after rising 13% above its 200 day SMA (289.89). It has been lagging the prior two weeks; this break higher reasserted its leadership, and we also note that the market rallied when the small caps rallied.
DJ30
Broke to a new closing high for the year as well, a good move after clearing the 2004 high (10,754) earlier in the month. Volume was not there once again, fading slightly on the session. Given the time of year we cannot be too upset about the volume. We do like the resumption of the upside move after a quick test of the breakout over the 2004 high.
Stats: +78.41 points (+0.73%) to close at 10854.54
Volume: 170 million shares Monday versus 193 million shares Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Existing home sales and oil inventories are the main entr es for Wednesday. After the plunge in new home sales the larger part of the market will be watched closely, but we also note that existing home sales are logged upon closing and not upon the contract as with new home sales. Thus they lag new home sales as closing takes 45 to 60 days after the contract. As for oil inventories, they are expected to fall after the cold weather and the surprising build last week. That upside surprise last week is really what set the market to moving higher as oil reversed the gains it had made after the surprising drop in inventories the prior week. Ever feel as if you are at the whim of the bouncing oil inventory ball? The market is not as fixated on oil prices as it was two months ago, but as oil falls, the market performs better and better. Thus even though inventories might be lower Wednesday, they are expected to fall. As long as they are in line (expectations are firmed on Wednesday morning) then the market should not get too roiled by the drop.
Other than the oil data the big trend is the continuing market uptrend. Stocks have continued their rise into the new year after taking the occasional breather. The market continues to rally when the small and mid-caps perform. Even when the larger caps were outperforming the small caps recently, taking up the slack so to speak, the market failed to make any serious headway, at least not the type it made when the small caps were leading.
Another factor to keep in mind is the market rise while most of the managers are off on holiday. Money flows into funds have been racing higher this month with a billion dollars or so a day moving into them. That money will have to be put to work, and thus there could be a wild start to the year. After that, things should calm down into a more serious test of the breakout from the 2004 base; you know that is coming, and after a spurt of buying to start the year similar to new month buying would be the typical time for that to occur.
Stocks were mostly solid all session though volumes were still so-so; no surprise there. Stocks really came to life late in the session, rallying to the close. The perfect scenario is a softer open Wednesday as market makers lower bids a bit to get some short term sellers to sell and thus allow the market makers to replenish their inventory. Then if prices start to rise after that softer open that bodes well for a continued rally. Ideally we would like to see SP500 break through 1215 after that early test back as that would show some real strength and give us some solid entry points.
Support and Resistance
NASDAQ: Closed at 2177.19
Resistance:
2250 - 2260 from January/February 2001 highs and lows.
2282 from 5-2001 high.
Support:
January high at 2154 (early 2004 high) and the 10 day EMA (2153).
The 18 day EMA at 2140
2110 - 2112, the top of the November consolidation.
Price support at 2090.
The April high at 2079
The 50 day EMA at 2079
2050, prior resistance and the June high.
S&P 500: Closed at 1213.54
Resistance:
Q1 1999 lows at 1215
October 1999 low at 1233
Q2 2001 peak at 1310.
Support:
The 10 day EMA at 1204
1200 acted as resistance on the last trip higher.
The 18 day EMA at 1197.74
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 1174
January highs at 1158
1142-1146 are the June highs and the October high (1142).
Dow: Closed at 10, 854.54
Resistance:
10,975 - 11,000 from Q4 2000, Q1 2001
11,350 from the May 2001 highs
Support:
10,754 is the February high
The 10 day EMA at 10,744
The 18 day EMA at 10,676
Price consolidation at 10,600 level
10,570 is the early April high
The late April, June peaks at 10,478 to 10,512
The 50 day EMA at 10,486
10,400, the bottom of the recent range.
September high at 10,342
The 200 day SMA at 10,250
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
December 28
Consumer Confidence, December (10:00): 102.3 actual versus 94.0 expected and 92.6 prior (revised from 90.5).
December 29
Existing Home Sales, November (10:00): 6.75M expected and 6.75M prior
December 30
Initial Jobless Claims, 12/25 (8:30): 335K expected and 333K prior
Help-Wanted Index, November (10:00): 37 expected and 37 prior
Chicago PMI, December (10:00): 63.0 expected and 65.2 prior
End part 1 of 2
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