|
|
money investment, best way to invest money
* * * *
1/19/05 Technical Traders Report
* * *
Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Wednesday: None issued
Buy alerts issued: BEV (bonus); VNWK; NKE
Trailing stops issued: None issued
Stop alerts issued: WMS
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 start soft, fail to react to good news, give back Tuesday move.
- CPI shows relatively mild inflation, but inflation, even if mild, is here.
- Housing starts roar back.
- Weekly chain store sales remain solid.
- Half a follow through is no follow through in this market.
- EBAY, QCOM send techs plummeting after hours.
Stocks revert to old ways, fail to reward good news and then sell off hard to the close.
Stocks looked perfect on the open, i.e. slightly lower after a solid move Tuesday, setting the stage for more entry points if buyers were willing to step back in. A slightly lower open slipped a bit further, and then slipped some more. By lunch NASDAQ had slipped below the 50 day EMA and SP500 was trying to hold the 18 day EMA.
After a softer open stocks had reason to rally. IBM and YHOO reported some good numbers the night before. The CPI was tame. Housing starts surged. Stocks did not. They ignored yesterday's news and remain focused on problems ahead with oil and interest rates (i.e. the Fed) along with some currency and wartime concerns. Sure the economic data looks quite positive to end 2004, but the market looks forward. Those issues historically negatively impact the economy and thus earnings. Earnings are already hard pressed to top the prior quarters (e.g. EBAY), and any economic drag will only add more pressure.
From the way the market acted Wednesday it simply was not ready to try a rally yet given the uncertainty associated with these issues. With NASDAQ failing to go along with the ride Tuesday, a sustained rally was a long shot despite the strength SP500 and SP600 demonstrated. Indeed, NASDAQ turned, undercut its 50 day EMA and sold hard into the close. SP500 and SP600 sold as well, managing, barely, to hold their 50 day EMA on the close.
Up until the last hour the weakness was not because of increased selling activity but buyers refusing to come back to the trough after the nice Tuesday rally. You can deal with that; a soft day after a couple of upside sessions when the market is trying to get back on track is no big deal. SP500 and SP600 showed that kind of session; even though they sold to their 50 day EMA, they sold on lighter trade. NASDAQ was again the weak link. More than that, it was the anchor chain that yanked everything else down with it, selling on rising trade into the close. That shows sellers coming to the market to unload tech shares once more, resuming the first of the year selling. It is going to yank the market's chain again tomorrow with the disappointing QCOM guidance and the big EBAY earnings miss.
THE ECONOMY
Consumer Price Index continues its rise, kind of.
December prices fell 0.1% overall, led by falling energy prices and fresh fruits (Florida storms had pushed fruits higher). That was the first drop since July, and if you look at the history of oil prices and food you can see it tracks the problems with those components. As with the PPI, the fact that energy led the drop implies that it will lead a rise in January given oil prices rebounded close to $50/bbl before backing off slightly the past two sessions.
Take out food and energy drops and the core rose 0.2%, in line with expectations and matching the November rise. We all know that energy and food prices were on the rise. This month's overall decline due to those components as the rest of the price points rise only highlights how prices overall are rising. The usual culprits were at work: medical care 0.3%; "other" goods and services rose 0.5%. There is definite upside creep.
The big issue is how much and what the inflation potential is as a result. Some headlines trumpeted the overall CPI rising at a 3.3% annual rate, the strongest rise since 2000. The core, however, rose 2.2% annually. That is up and is technically inflation.
Looking at the big picture, however, only three times since 1966 has core inflation rise at less than 2.2% annually, and two of those were in 2002 and 2003 when the economy was recovering from that nasty plunge from 9% GDP growth to negative in short order. Given that the economy grew at right at 4% in 2004, this is very tame inflation. Excellent growth, nominal inflation at the consumer level.
Still, you have to look down the road. Inflation remained relatively tame at the consumer level in 2004, but commodity prices are still rising. The future is the key and PPI prices are bleeding into the CPI. It is not a dollar for dollar transfer; it never is. But the pressure is there as we saw in the Boat Show indicator. Companies cannot absorb a doubling, tripling or more of steel, copper, plywood and other materials costs and stay in business.
Prices keep the Fed on a rate hiking course.
Thus, that keeps the Fed raising rates. The decline will likely put off the abandonment of the 'measured pace' at this point, but it still guarantees a 25 basis point hike at each meeting for at least the next 3 to 4 meetings. That is something the market can withstand. Problem is, the market knows the Fed's history and knows it tends to lose patience and ratchet up the intensity of rate hikes just when it should be backing off.
Moreover, the market was anticipating the Fed bringing this hiking to a conclusion after 3 more hikes or so, similar to back in 1984 and 1994. The commentary from FOMC members has been more hawkish than that, and the market has balked at the idea. Remember, the indices broke out in late 2004 in anticipation of the rate hikes having more or less a clear end in sight (near 3%). History is clear: excessive rate hikes will kill off a market rally. History is also clear to market investors that the Fed, as noted, usually gets impatient and overdoes it. Hence the genesis of the 'don't fight the Fed' saying; the Fed doesn't fight fair or logically.
Inflation problems have roots in how recovery was managed.
One problem we discussed often when incentives for the recovery were debated in Congress and when the recovery was underway is the early emphasis on the demand side. As we know, demand never really faded during the recession; the problem was in the business side as capital investment and venture capital dried up. The first stimulus, however, was demand oriented (i.e. toward the consumer), something many in Congress required in order to get anything passed. Indeed, in several conversations with local Congressmen we were told that increasing the demand side had 'always worked.'
Not true. In the early 1980's the recovery was supply driven. Massive cuts in marginal tax rates, capital gains rates, strong tax credits, and accelerated bonus depreciation were powerful incentives to invest big in the US. That massive investment created new products that created new demand where none existed before. As a result there was tremendous growth with no inflation. Supply led the recovery and demand followed. Supply creates its own demand as we saw over the next 10 plus years.
This recovery saw already solid demand increase long before producers received tax incentives to invest in new equipment to ramp up supply. Thus demand was ahead of supply from the get go. Demand was stronger than supply. More dollars chasing a stagnant level of goods and services. That is the definition of inflation, and that is what we have been fighting this entire recovery unlike the recovery in the 1980's and in the 1990's (the nineties were a continuation of the 1980's boom, riding the wave of that huge capital investment that created new technologies and jobs and thus demand where none existed before).
That is the battle we are fighting now, at least that is what the Fed is fighting and what we are worried about. How to alleviate this? Get more supply going. Cut the capital gains tax to free up investment capital that will be put to work in the economy. It is not too late to do this just as it is not too late to spend $1T to $2T now to save $11T down the road with social security. Get more investment in supply and thus generate more goods and services to meet and surpass demand. That will create more economic activity (more tax revenues) and all of the positives that ride on those coattails.
Housing starts jump 10.9% as volatility creeps in.
December new home starts rose the highest in 7 years, reversing the November drop that was the strongest in 11 years. 7-11; maybe that means something, but I am not sure (need a Big Gulp?). The gain was heralded as wiping away the November drop, proving the market was still on course, etc.
What it shows is volatility. If you have read our reports long enough you know we always look for volatility as a sign of change. Big down month than a big up month. The housing market is getting choppy even as it continues its trend higher. Does it mean a drop is imminent? No. It is simply a further sign that the straight line growth experienced is not as easy or sure a bet.
The real key to the market is interest rates. Low rates have driven home ownership to all-time highs and with mortgage rates still below 6%, it will continue to do so. The enemy of the housing market is a Fed that gets out of control. Homebuilding stocks are still strong performers, however, showing no problems with the rate hikes to this point. If there was trouble ahead the patterns would show it. For now it is not there. The Fed is not great news for home sales, something the Fed knows very well as the Fed is now concerned, despite Greenspan's statements to the contrary, that the housing market has moved too high and is subject to a more severe correction (another way of saying 'bubble').
Jobless claims show continued volatility as well.
After three weeks of above expectation increases, jobless claims tumbled to a very low 319K from 367K. Claims were up more than expected the prior three weeks and then fell more than expected. Is this market volatility? No, it is government volatility caused by how the numbers are compiled. As discussed the past few weeks, seasonal adjustments can really distort the results if expectations are not met. Thus last week does not necessarily mark a sharp drop in claims (though at the first of the year more fell off the roles because of time) just as the prior weeks did not necessarily mark a huge jump in claims. The real number is somewhere between the 319K and 360K level.
Weekly same store/chain store retail sales mixed yet again (you say black, I'll say white).
Redbook and ICSC released their weekly sales reports Wednesday, and surprise, they were at odds with each other yet again. Redbook says weekly sales rose 1.2% compared to December and 3.3% year over year. Quite nice. ICSC reported sales fell for the second consecutive week, down 0.9%. Year over year sales slowed to 4.1% gain versus a 4.4% gain the prior week.
The positive from both reports was that sales were stronger than expected as those gift cards that were not allowed to be counted when the money was coughed up for them were redeemed in good numbers.
THE MARKET
Half a follow through was not enough of a follow through, at least for the current market. NASDAQ did not support the large cap and small cap move Tuesday, and it gave up Wednesday, selling on rising volume. After struggling to recover the 50 day EMA, it gave it up Wednesday on rising volume with a sharp, higher volume late session sell off. After hours things only worsened as QCOM and EBAY spread earnings angst with poor guidance and an outright miss by EBAY. An ugly capper to a session that returned to its negative ways.
NASDAQ looks prepared for a test of the next support level, and the issue is whether SP500 and SP600 can hold their 50 day EMA. Indeed, SP600 and SP500 (small caps and large caps) showed relative strength to the rest of the market, though holding their 50 day EMA after a 0.9% loss is hardly something to set your buy orders on. We do note, however, that the smaller caps provided the best upside action in the market again on Wednesday. After starting the year as a laggard, getting dumped from every who's who list, this relative strength and impressive recovery of the 50 day EMA is encouraging for the market. Of course NASDAQ, the other 2004 leader, is in the toilet, and that is a big market drag.
Despite the better relative performance of SP500 and SP600, it is hard to escape that overall negative bias that re-entered the market as stocks ignored good news, closed at the session low, and on stronger volume. Up to SP500 and SP600 to hold the line and try to piece something together at the 50 day EMA.
Market Sentiment
VIX: 13.18; +0.71
VXN: 19.24; +0.49
VXO: 13.74; +1.07
Put/Call Ratio (CBOE): 0.87; +0.01
NASDAQ
Led the downside charge after it failed to provide volume support to the Tuesday upside move by SP500 and SP600. Volume jumped as it undercut the 50 day EMA and sold to the close on strong volume.
Stats: -32.45 points (-1.54%) to close at 2073.59
Volume: 2.254B (+12.2%). Volume jumped well above average, the strongest in four sessions. Not what you want to see as an index turns below support as it shows big money unwilling to hold shares at a key support level.
Up Volume: 433M (-859M)
Down Volume: 1.808B (+1.2B)
A/D and Hi/Lo: Decliners led 2.14 to 1. Breadth was not strong enough on the Tuesday upside move but expanded on the downside move. Definition of weak.
Previous Session: Advancers led 1.72 to 1
New Highs: 74 (-30)
New Lows: 26 (+2)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
That good price move on lower volume could not hold up Wednesday. What was a lack of buying most of the session (volume was running fairly light) turned into real selling in the last hour as tech stocks sold into the close on rising trade. NASDAQ broke back through the 50 day EMA (2092) with more strength than it recovered that level. It is still in the recent lateral range and can find support at the bottom (2065), but it does not look good.
NASDAQ 100 turned back through the 50 day EMA on strong volume as well. QQQQ volume was strong as well as the large cap techs test some modest support at 1544 (38 on QQQQ). Similar situation as with NASDAQ overall; indeed, the large cap techs sold harder than overall NASDAQ (-1.8%).
SOX turned back from the 18 day EMA after two days of a bounce, posting a 2.1% drop that led the market lower. After a modest test it is selling on rising trade.
SP500/NYSE
Gave back the Tuesday move almost to the penny. Unlike NASDAQ, volume was lower as it made the test, a better indication as the large caps and small caps were not being dumped.
Stats: -11.35 points (-0.95%) to close at 1184.63
NYSE Volume: 1.496B (-6.89%). Volume was still above average but fell off pace from the Tuesday gain. That indicates the buying was stronger than this selling, a good sign as it shows investors not dumping their large caps and small caps. We will see if that holds up after the tech wreck in the morning.
Up Volume: 361M (-839M)
Down Volume: 1.112B (+742M)
A/D and Hi/Lo: Decliners led 1.55 to 1. Not great but not bad at all as declining issues failed to ramp higher as SP600 and SP500 showed relative strength.
Previous Session: Advancers led 2.15 to 1
New Highs: 157 (-7)
New Lows: 13 (-10)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Gave back the Tuesday move but held the 50 day EMA (1182) and sold on lighter volume. No dumping of shares. That is a positive, but with the techs tanking on volume and ready to take some more, the SP500's relative strength will be tested. The large caps are holding the 50 day and they also just held some lower support at 1175 last week. In short, there is room for it to test with NASDAQ and still hold support. Again, a lot to overcome to hold up.
The small cap SP600 is also right back over the 50 day EMA (315.06), also holding that level as the small caps sold on lower volume and also showed relative strength. They are still above that important level as well as 310 price support recently tested. Given the somewhat toppy pattern, holding the 50 day EMA on the close, even after a lower intraday test, would be the better action. As with SP500, we will just have to see how the small caps respond to the selling and react to the 50 day EMA.
DJ30
DJ30 gave up the 50 day EMA (10,550) by a relatively slim margin as most blue chips sold. IBM was down sharply, putting a damper on the index. Volume declined as it sold; as with SP500 a decent sign but it has not been a pillar of strength. Some support at 10,500 held earlier this week.
Stats: -88.82 points (-0.84%) to close at 10539.97
Volume: 242 million shares Wednesday versus 267 million shares Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Thursday is inauguration, but stocks are not going to focus on that. The QCOM and EBAY guidance, along with the EBAY current quarter miss, will dominate the early action. They were taking down most techs and internets with them after hours with some very harsh selling. EBAY's miss is similar to when DELL first missed. After beating expectations for quarters on end it finally missed and the treatment was rude. It happens to all growth stocks and EBAY was down 11 points after hours on top of the regular hours selling. It has coattails as GOOG and YHOO were in the slaughterhouse as well after hours. QCOM's miss was impacting telecom, chips, and other techs in general.
Thus the open looks pretty ugly. NASDAQ rolled over on volume in anticipation. SOX turned down as well after a 2 day bump higher. They set up a move lower, and everyone is anticipating such. A gap lower will occur. The question is whether it will be the start of another down leg or a washout where the last sellers are flushed out.
The sentiment indicators are still too high to indicate a turn back up is at hand. It has made just one down leg on this drop that started with high volume and looked to start again Wednesday as NASDAQ sold on again rising volume. The overall bias is still downside and Wednesday did nothing to change that.
SP500 and SP600 are showing some backbone, but in the face of an overall negative look to the market they will be sorely tested to hold the 50 day EMA, and the next support level, already tested once recently, is no sure thing.
There will certainly be a sharp blow down on the open as NASDAQ and SOX dive to find support. We will watch SP500 and SP600 closely as well as how NASDAQ rebounds. It is a long shot, but a gap lower after there has already been selling for most of the month can provide the spark for a rebound. A flush out of the sellers, however, would be more likely after a longer round of selling than what we have seen thus far. NASDAQ and SOX patterns suggest that a further leg down is starting, and thus a big rebound intraday is less likely.
We will watch to see how stocks rebound after the lower open. A gap lower makes it hard to enter downside plays, but a weak rebound after such a gap lower represents some opportunity if stocks remain weak on that bounce. More difficult but doable, particularly given that NASDAQ and SOX look quite weak.
Small caps will also be watched for opportunity. They held up quiet well Wednesday, and a modest early dip and turn back up will provide some solid entry points into those stocks that are holding the line and continue building their patterns.
Support and Resistance
NASDAQ: Closed at 2073.59
Resistance:
The 50 day EMA at 2092
2110 - 2112, the top of the November consolidation.
January high at 2154 (early 2004 high)
2250 - 2260 from January/February 2001 highs and lows.
2282 from 5-2001 high.
Support:
2065 is the bottom of the recent range, but won't hold on the initial gap lower.
2050, prior resistance and the June high.
2023 from the early June 2004 high.
S&P 500: Closed at 1184.63
Resistance:
The 18 day EMA at 1191
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:
1185, the top of the November consolidation range.
The 50 day EMA at 1182.03
1175 second high in that double top that spanned late 2001.
1166 is some support.
1157 is solid support from January through March consolidation tops.
Dow: Closed at 10, 539.97
Resistance:
Price consolidation at 10,600 level
The 18 day EMA at 10,621 turned the index back Wednesday.
10,754 is the February high
10,975 - 11,000 from Q4 2000, Q1 2001
11,350 from the May 2001 highs
Support:
The 50 day EMA at 10,550 is trying to hold.
The late April, June peaks at 10,478 to 10,512
10,400, the bottom of the November/December range.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
January 18
NY Empire State Index, January (08:30): 20.08 actual versus 25.0 expected and 27.07 prior (revised from 29.93)
January 19
CPI, December (08:30): -0.1% actual versus 0.0% expected and 0.2% prior
Core CPI, December (08:30): 0.2% actual versus 0.2% expected and 0.2% prior
Housing Starts, December (08:30): 2004K actual versus 1905K expected and 1807K prior (revised from 1771K)
Building Permits, December (08:30): 2021K actual versus 1985K expected and 2028K prior (revised from 1988K)
Initial Jobless Claims, 01/14 (08:30): 319K actual versus 345K expected and 367K prior
January 20
Leading Economic Indicators, December (10:00): 0.2% expected and 0.2% prior
Philadelphia Fed, January (12:00): 25.0 expected and 25.4 prior
January 21
Michigan Sentiment-Preliminary, January (09:45): 97.5 expected and 97.1 prior
End part 1 of 3
|
money investment
best way to invest money
|
