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us stock market, stock watch
Begin Part 2 of 2
THE MARKET
A further plunge toward testing the lows as volume climbed above average for the first time in weeks. The market is very oversold, but oversold conditions are hard to judge; the market can keep getting more and more oversold each leg down before it snaps back up in relief. Keep sensible downside profit targets; don't get greedy. We had some good gains today and took them. When short covering comes, it comes fast.
Overall market stats:
VIX: 28.08; +2.35. Making a better move finally, but it has been as hard as pulling teeth. Even with all of the gloom and capitulation talk, the index is still below the MINIMUM level of possible reversal, 30. As we have noted, it usually takes 50 to 60 to get a real move going. A lot of way to go, but if fear crescendos, it grows exponentially.
VXN: 52.28; +3.00. Making a much larger percentage move, but still a long way from the 68 and higher levels that have led to the prior turn off the low in April. Same story as the VIX; it is going to take more selling down toward that low to spike that fear and get the last holders to sell out.
Put/Call ratio (CBOE): 0.94; +0.09. Getting closer to another close over 1.0, a signal that a turn could be at hand. In the spring it took three readings over 1.0 on the close to get the VIX and VXN to catch up to the fear level the put/call ratio was showing. It is not there yet as we can see.
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:
We were looking for the Nasdaq to hold at its recent low of 1817 for a reflex bounce back up that we could play. It tapped the low and jumped back up, but that lasted about 10 minutes. It folded below those levels on strong volume. Very oversold and will bounce, but may have to hit 1750 first.
Stats: -51.49 points (-2.8%) to close at 1791.68.
Volume: 1.735 billion shares (+18.5%). Volume shot above average for the first time in weeks. Institutions were dumping shares unabashedly. Down volume led 1.375 billion shares to 334 million (total volume Wednesday was 1.464 billion). High volume selloffs can signal 'capitulation.' As we have said, however, the other planets have not lined up with this yet. We could get a bounce, but we do not think it would be the real thing.
A/D and Hi/Lo: Declining issues did not quite double up advancers (1.89 to 1). Not pretty. New highs fell to 45 (-3) as new lows rose to 193 (+50).
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq tried to bounce, but there was no mercy out there today. It undercut even its recent low at 1817 and was in freefall with all others. It found some support at 1780, bouncing off that level twice to finish slightly off of its session low (1777.11). It too looks to be in for a full test of the April low at 1619.58 though we can have a short covering rally at any point; three hard selling days has the index oversold and that usually leads to a bounce higher. It may test 1750 first before trying a move higher to 1817.
Dow/NYSE:
The Dow ran right up to 10,120, the previous intraday low it just broke, and then tanked. A nice test of resistance that was a good point to take new put positions. That was about all it was good for as it tanked on rising, above average volume NYSE volume.
Stats: -171.32 points (-1.7%), its third triple digit loss in as many sessions, closing at 9919.58.
NYSE Volume: 1.169 billion shares (+19.8%). Distribution, i.e., institutional dumping of shares in full force. The prior distribution days we saw earlier in August foretold the story. Down volume was 941 million to 218 million upside shares. Heavy, but not capitulation-level volume.
A/D and Hi/Lo: NYSE declining issues spiked to 1.9 to 1. Heavy, but again not capitulation numbers. New highs actually rose to 113 (+11) as new lows shot up to 102 (+46).
The Chart: http://www.investmenthouse.com/cd/$dja.html
The Dow undercut the 'hump' in the double bottom pattern that formed in March and April (9947.54), clearing the way for a further move down toward a test of the low at 9106.54. After three sessions of triple digit losses on rising volume, the index will be ready at some point for a relief bounce. Problem is, relief bounces are hard to gauge for bounces. The index cannot, however, maintain such a steep decent without a reflex bounce. So, be careful with the shorts taken when the Dow rolled over at 10,120.
S&P 500: As with the Dow, the OEX hit resistance at the previous low (1150) and turned and ran down on above average NYSE volume. As noted, it is just 3 to 4% away from the low (1081.19). The S&P, the big cap index, is heading toward its low faster than even the Nasdaq. Looks as if it will be the first to undercut. It would be better if all were ready to pierce the lows at the same time; at this rate the S&P will have to wait a while for the Dow to catch up, and that could lead to a substantial undercut of the S&P low.
Stats: -19.53 points (-1.7%) to close at 1129.03.
Volume: NYSE volume jumped to 1.169 billion shares (+19.8%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
Summary: The test of the lows is on. The Dow made a complete test of its lows back in 1974 before it turned. Looks as if the S&P will be the first one to do it. In 1974, the last three-leg bear market, it only took one index to completely test the prior low to turn the whole market higher. We are going to see history in the making once again.
TOMORROW
Consumer sentiment, Chicago PMI, and factory orders are all out after the open tomorrow. The economic news has not been great this week, and it has been helping to gut the market. Factory orders and the Chicago report are supposed to be better; not reversal numbers, but better. Sentiment is expected to fall a hair; expect a hair more than expected. We doubt Chicago will post better numbers.
In any event, the last reports of the week are just a prelude to Tuesday, a whole new chapter in the book. September is called the worst month in the market, but August this year would be hard to beat. Things are definitely not the norm this year; there was no rally into Labor Day that set up the fall we had last year. The numbers on the techs have been stripped down; there are more downward revisions to come, but the bombshells have been dropped despite what Dan Niles says. Everyone knows things are crappy and are not getting much better if at all right now. So, maybe no new shocks next week.
Still, there is a test of the lows coming on one or all of the indexes. What no one knows right now is whether it will be a successful test, i.e., one that rallies into the bull run or just the prelude to another leg lower. The economy is not helping right now, but it is not tanking. The dollar is the wild card in our opinion. It has to continue to firm, and holding in the current range would help. We will keep an eye on volume (we want to see heavy selling volume) and the sentiment indicators (we want to see them rush to the extreme ends of the scale as the prior lows are approached. That will give us an idea that the bottom is getting ready to hold or not. The ARMS index says we have a bottom coming in the next 15 days or so; it has been right for as long as its data has been kept.
What we do is just watch the market in its downtrend for signs of change. Not a lot of great patterns in what one would consider leading sectors, and that will hamper any recovery attempt. Do we hang onto those stocks we should have sold, hoping for a bottom at the previous lows? At this point some say 'don't sell them; it's too late.' Well, the real question is, if this thing does turn, will this be the stock that will make me the most money? Many, many of these techs that people are hanging onto won't survive a test of the lows and won't come back for a long, long time. We believe in putting your money in the stocks that historically show the greatest propensity to return the largest gains when the market turns and rallies. These are stocks with the right earnings, sales, and patterns. We want a winner that can double, triple, and more in the next bull run. We want a stock that we don't have to sell for a long, long time as it leads the market. Those are our focus when the market turns, and that is what we cover in our seminars.
Tomorrow could be a treacherous day. There won't be much volume as many fund managers are not going to be at work tomorrow. If a rally starts, that could lead to short covering rally with some intensity. Low volume days can be unpredictable. We will still look at good breakouts from some promising patterns from biotech and other sectors, and we will look at further ripe downside action, but we won't push it. As we said, starting Tuesday we could have a whole new chapter with all of the fund managers back in the office and ready to work.
Support and Resistance Levels
Nasdaq: Closed at 1791.68.
Resistance: 1935 to 1940 stopped the last move higher. Much higher in the range, 1985 to 2013 is pretty congested.
Support: 1750 is next in line, but there is not a lot of support there. The low is 1619.58.
S&P 500: Closed at 1129.03.
Resistance: 1165 to 1170. 1183 is next, then 1200.
Support: The low is 1081.19.
Dow: Closed at 9919.58
Resistance: 10,000 may act as resistance. Then 10,120 and 10,200. After that, 10,400. 10,600 is strong resistance.
Support: 9775 to 9800 is potential support. The low is at 9106.54.
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): 0.2% actual versus 0.0% expected and 0.7% prior.
Chain Deflator-Prel., Q2 (8:30): 2.2% actual versus 2.3% expected and 2.3% prior.
8-30-01
Initial Claims, 8/25 (8:30): 399K actual versus 400K expected and 400K prior (revised from 393K).
Personal Income, July (8:30): +0.5% actual versus 0.3% expected and 0.3% prior.
PCE, July (8:30): 0.1% actual and expected versus 0.5% prior (up from 0.4%).
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 QUESTIONS and TEAM TRADES
Because of the severe weather in the Houston area (yes, more floods possible as well as tornados), we are battening down the hatches once more and cannot get team trades or subscriber questions out tonight. We apologize for the inconvenience.
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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