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world stock market, us stock market
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9/05/01 Technical Traders Report
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Technical Traders Report Subscribers:
Market Alert:
ALERT SERVICE
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertttr.htm
ONLINE SEMINARS:
Starts September 12 with Market Basics, covering the basics on reading the market, individual stocks, volatility, futures, options, and a lot more. Then we jump to Technical Analysis to get you in on the ground floor to understanding why the market and stocks move the way they do. This information will knock the scales from your eyes.
To sign up or learn more click on the following link:
https://w1407.securedweb.net/investmenthouse/wk/ordercrs.php
SUMMARY:
- Markets sell down hard and then reverse on much stronger volume.
- A solid reversal on heavy, but not massive, volume largely overlooked.
- Treasury Secretary O'Neill has some strong words for the dollar.
- Earnings reaffirmations from MSFT, TXN, PG, CO, and BUD don't hurt.
- Layoffs top 1 million.
- Bubbles, bubbles everywhere.
- Subscriber Questions
Deep selling intraday reverses course on solid volume.
Brief strength gave way to a sharp decline (almost 70 points from high to low on the Nasdaq) intraday as the indexes resumed Tuesday's selling. Right after lunch they reversed and started a move higher. That was helped along by MSFT once again reaffirming its year-end earnings prognostications. The climb from the lows was as impressive as the earlier selling. Volume jumped to its highest levels since June.
It looked something like a reversal session: each major index showed a 'hammer' doji after a 'shooting star' doji on Tuesday. These can be signals of a turn back up after several sessions of selling. The 'hammer' is also called a doji with a tail as the index reaches way down on the low and then rallies as buyers come back in, forming the long tail. The buyers have stepped in at the low and pushed the index back up.
The higher volume is another potential signal that goes hand in hand with the doji candlestick pattern. The Nasdaq pushed toward 2 billion shares at 1.95 billion. The NYSE logged 1.36 billion shares. Very respectable volume, especially given the light August volume. That is always a signal of reversal action. Even though it was higher, however, it was not the type of massive volume you look for on a real turn back up.
Other factors to consider: volatility was up, but still not at the high levels that accompany sustainable bottoms. We have had some emails suggesting that these indicators may be outdated at this point and that fear really is high. Well, we want to avoid getting emotional and abandoning what history teaches. Volatility is a measure, just as are other indicators and stock charts, of investor psychology, i.e., investor emotion. Investor emotion, despite all of the technology and information flood, has not changed. Many investors are still holding on, not giving up in a run for the exits that often marks a final bottom. The volatility indexes are showing this; fear is rising, but it has not hit the 'get me out at any cost' level.
In addition, the put/call ratio spiked higher, but just missed closing above 1.0 for the second time in as many weeks. We are looking for 2 to 3 closes above 1.0 along with a spike in volatility. It has been close, but close usually just gives rise to shorter rallies if the fear does not ratchet up high enough.
Thus while today looked like a potential reversal just above the lows for the year and may give us a move up from here toward the down trendlines, it was not convincing as far as the final bottom and needs a follow through session next week. And when we say we need follow through, we are talking massive volume, a good A/D line, and good stocks breaking out. In other words, the whole works. Too many rallies have turned and failed. We are close to the bottom, but we don't think today took us close enough and churned up enough fear. You could feel that it was not there.
THE ECONOMY
Treasury Secretary O'Neill takes a pretty strong stand.
After playing the most dangerous game you can play with your currency, i.e., making a purposefully lukewarm policy statements, Mr. O'Neill came out with a strong statement on the dollar just a day after the dollar made a strong move against other currencies based on a stronger than expected NAPM. Specifically, O'Neill said "The policy is the same. There is no intent to change. And I don't have anything else to say about it. A strong dollar policy - - good, continuous." That is pretty good, pretty firm. Seems they got the word that a strong dollar keeps needed foreign investment in the U.S.
The dollar itself rose again, though not a powerful move as it made on Tuesday. Still, it did not collapse back down into the trading range as it did on its previous attempt at moving higher. Strong support from the administration should continue to help.
A bunch of earnings affirmations. Some help, some don't.
The big affirmation came from MSFT in the early afternoon, and that helped spur the recovery off of the lows. Basically it was the same statement made a month ago, affirming the year revenues. That bounced MSFT higher on strong, above average volume. TXN also came out and affirmed, but the response was a further selloff on much stronger volume. Xbox momentum may be helping MSFT versus the weak perception of the chip market. PG affirmed as well and posted a moderate gain as it fell short of clearing its recent high. BUD (Anheuser-Busch) also affirmed its year results and it enjoyed a decent day, trying to break out of its four month trading range. People drink in bad times, and there has been a lot of incentive to drink.
These affirmations help, but there are just as many or more affirmations of bad times or worse earnings numbers. The economic reports are turning higher again, and that will ultimately be the leader of the recovery. The employment report probably won't help that much on Friday unless there is a real surprise.
Job cuts surpass 1 million.
This year there have been 1.12 million announced job cuts. That does not mean that all of them have come or will come to pass, but it does show how bad things have been. Companies do not want to cut employees unless they have to because of the costs of finding them, training them and then replacing them. Unless they plan on waiting quite awhile to replace them, they hang on as long as possible. Then they wait as long as possible to hire when things turn around.
That is why in history we see how layoffs continue to rise even after we know in retrospect that the recession was over or that the bottom was in. We have seen jobless claims rising higher even as economic data (with the exception of July) improving. That is the usual pattern, and that is another indication that the bottom in the economy is most likely in as long as the dollar stays firm.
Of bubbles and soothsayers.
The new buzzword is 'bubbles.' We started counting on CNBC today, but quit after about 50 mentions. Then there was a piece on the 'real estate bubble.' We listened. It was presented pretty much as fact that real estate was in a bubble that was going to burst.
Yes we have friends and acquaintances in Silicon Valley that sold their homes earlier in the year as they were relocating and had to cut their price to move the home. Yes we know that some there walked on earnest money amounts in the $100,000 range rather than go through buying a home out there when they realized their jobs were over. Does that mean the entire real estate market is going to crash? Is that proof of a bubble?
We talked about fear mongering last night, and tonight's story on CNBC was shoveling every bit as much negative fertilizer as overly exuberant fertilizer when the market was roaring. After giving a few snippets of rather general and vague facts, the 'reporter' concluded "it might be a good idea to sell now." Unreal. It is the same mentality, but just the flipside, as we heard on the upside: 'better get in now while you can' versus 'better get out while you can.'
Maybe things are going down the tubes for good this time along the lines of another Great Depression. Maybe things have all finally lined up for a real disaster. Maybe we should sell everything and go live in a cave. Many did that for Y2K. Many relocated back in 1982 and 1992 when the same doomsayers said things were over as we knew them. Yes the were, but it was for the better not the worse. Once the fear was high enough, things started back up.
THE MARKET
The market made an impressive intraday reversal, but in our review of market summaries, we don't find a lot of mention of this turn. Seems no one is buying in on it. That, in the contrarian world of financial markets, is actually a good sign. There is no one latching hold of this as the 'turn' as they have done on each reversal day in the past. In other words it seems the skepticism is getting close to where it needs to be. Still, it is not quite there in our opinion as noted above.
Still we were disappointed in today's action. We wanted a real selloff to set up a real spike in fear. It did not materialize, and that makes the road down still more of a reality, it just will most likely take a bit longer now.
Overall market stats:
VIX: 28.96; +0.30. Hit a high of 30.50 today, a good start, but not enough.
VXN: 58.73; +1.58. High of 59.76. Getting there, but about 10 points (at least) from where it needs to be.
Put/Call ratio (CBOE): 0.97; +0.14. A good spike, but did not close over 1.0 as we wanted. That would have given us the second close over 1.0 in two weeks, and we anticipate it will take at least 2 such closes to get us at a turning point.
In sum, what we need is more selling to shake out the last sellers. Historical norms are not defunct at this bottom just as they were not defunct at the top in the spring of 2000. We are getting close, but we may have a rally here before it falls back again to re-test the lows.
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:
Another big intraday swing, this time to the upside after testing much lower. It may lead to a rally attempt, but it is going to get met with short selling again and the index is still in a downtrend.
Stats: -11.77 (-0.7%) to close at 1759.01
Volume: 1.953 billion shares (+27%). Volume jumped to its highest level since June as the post-vacation sellers and buyers hit the market. For reference, we saw volumes of 2.1, 2.3, and 2.5 billion in June. Even higher in the April rally. We will look for a solid confirmation next week on volume well above 2 billion. 1.301 billion shares to the downside, 623 million to the upside. Still 2 to 1 downside volume.
A/D and Hi/Lo: Declining issues ramped up the lead to 1.75 to 1 (1.57 to 1 Tuesday). New highs fell to 48 (-14) as new lows spiked to 244 (+101).
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq raced lower to 1715.86 on its low and then rebounded to close just above its recent bottom of its channel. The buyers definitely stepped in early in the afternoon, but upside volume was still weak. A fairly strong reversal day such as today could give some upside momentum toward the down trendline at 1850, but if all things remain roughly the same (i.e., the economy), it will have a hard time breaking over that level. The index has given these turns before and then continued downstream. The SOX options we bought last week were bidding $82 at one point today, indicative of the continued downtrend even after the index tried to hold the line at 550 late last week.
Dow/NYSE:
The Dow has been in a mighty fight with the 9880 level, just below the middle of the March and April double bottom pattern. Today it tested 9885.88 once again, and reversed to close higher. Volume was up on the move. It is set up for a move higher short term, one reason we were not ready to jump in with puts on this index last night.
Stats: +35.78; (+0.4%) to close at 10,03.27.
NYSE Volume: 1.365 billion shares (+14.5%). Volume was stronger on the reversal and then the gain, but it was not huge volume (1.7 billion) seen earlier in the summer. Down volume led 943 million to 405 million upside shares.
A/D and Hi/Lo: NYSE declining issues moved back into the lead at 1.5 to 1 (advancers led 1.11 to 1 Tuesday). New highs fell to 95 (-58) as new lows rose to 126 (+52).
The Chart: http://www.investmenthouse.com/cd/$dja.html
Tested 9885 again on the low, a point where it has been tapping the past four sessions. Perhaps it is putting in a floor for a real move higher, perhaps to test resistance at 102 or maybe even further. It too is still in a downtrend, but it has held up on this testing of the prior lows better than the Nasdaq or the S&P. Indeed, its testing the 9885 level has set up a bit of a floor for a move higher to the 102 resistance. Maybe it can move higher, but if it does, it will be on confirmation of today's move.
S&P 500: The big caps also tapped lower (1114.86) and then rallied back to near flat on a big jump in NYSE volume. It too showed its second doji, this one a 'hammer' as it tapped down just 33 points off of its prior low for the year (1081.19). Getting really close to that full test, and we would feel a lot better if volume really spiked up on this move. Fear as well. The reversal may give us a jump back up to the down trendline at 1160 or so, a short term rally. Without the extreme fear, however, the short sellers will be back on it when it does. It has not broken the downtrend of course, and until it does, the game is pretty much the same.
Stats: -1.20 points (-0.1%) to close at 1131.74.
Volume: NYSE volume was up sharply to 1.365 billion shares (+14.5%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
Summary: The indexes are trying to transition as they get closer to their March and April lows. A big intraday reversal to the downside on Tuesday and a big intraday reversal off the lows today. Volatility is a clue to change, and we have seen it edging higher as the markets move up and down in 100 point swings. Still, they have not made a definitive upside move, and as long as the downtrends stay in place we have to respect them.
TOMORROW
Jobless claims before the open and the NAPM services a half hour into the session. These could get the market moving to a degree; a strong services component above 50 would be an upside catalyst that we could play to the near term resistance.
As we noted last night, the downside action is swift in both directions. The indexes sold off hard today, but then found support and bounded higher. The SOX managed to run right back up to the 535 level after testing all the way down to 513.35. Fast to the downside, fast to the upside. Overall the trend is down, and as with the other indexes we will look for the next chance to play it to the downside after catching some upside if it presents itself.
Tomorrow we expect the indexes to try to move higher once again toward the down trendlines based on today's reversal off the lows on stronger volume. Whether the move is successful or not, i.e., if it can break the downtrend remains to be seen. We do not believe the move today had enough power behind it nor the backing or foundation of extreme sentiment and it will fail unless something else comes along to alter the landscape such as some major economic news change.
We are going to attempt to play the move to the upside on the indexes, knowing that they will most likely be short term moves as long as the downtrends remain in place. Then we will take some quick profits when the move is stalling and flip to the downside for a longer move back down. Quick upside followed by a continued downside to test the lows. That has been the pattern the market is moving toward. We wanted it to keep selling straight down to get the fear level way up and then a reversal. Now it appears we will have another rally attempt before that happens.
Support and Resistance Levels
Nasdaq: Closed at 1759.01.
Resistance: 1817 (mid-August low), then the down trendline at 1850. 1935 to 1940 stopped the last move higher. Much higher in the range, 1985 to 2013 is pretty congested.
Support: 1750 held on the close after an intraday low at 1715.86. The low is 1619.58.
S&P 500: Closed at 1131.74.
Resistance: 1150. Then 1165 to 1170. 1183 is next, then 1200.
Support: The low is 1081.19.
Dow: Closed at 10,033.27
Resistance: 10,000 gave up a bit of ground today. Then 10,120 and 10,200. After that, 10,400. 10,600 is strong resistance.
Support: 9885 has been holding fairly firm on this consolidation. It might try to hold on the way back down, but 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.
9-4-01
Auto Sales, August (8:30): 6.1M versus 6.1M prior.
Truck Sales, August (8:30): 7.1M versus 7.3M prior.
Construction Spending, July (10:00): -0.1% actual versus 0.0% expected and -0.7% prior.
NAPM Index, August (10:00): 47.9% actual versus 43.2% expected 43.6% prior.
9-5-01
Productivity-Revised, Q2 (8:30): 2.1% actual versus 2.0% expected and 2.5% prior.
9-6-01
Initial Claims, 9/1 (8:30): 395K versus 399K prior.
NAPM Services, August (10:00): 49.1% versus 48.9% prior.
9-7-01
Nonfarm Payrolls, August (8:30): -50K versus -42K prior.
Unemployment Rate, August (8:30): 4.6% versus 4.5% prior.
Hourly Earnings, August (8:30): 0.3% versus 0.3% prior.
Average Workweek, August (8:30): 34.2 versus 34.2 prior.
Wholesale Inventories, July (10:00): -0.2% versus -0.2% prior.
SUBSCRIBER QUESTIONS
Q: The September 40 puts your Broadcom play are deep in the money. Why not buy something at the money, which looks cheaper--at least on the surface?
A: When playing the downside the moves down can be fast and the moves back up can be fast as well. We are looking for movement as well as some protection. What do I mean? Deeper in the money gives us a good delta, and hence better movement on the option when the stock moves. September is a bit close to expiration, but same month options add to the movement. So, that gives us a good move. We also like deeper in the money for protection to a certain degree. We know that an option is made up of intrinsic value (the amount in the money, sort of the 'book value' of the option) and the extrinsic value (the out of the money portion that is made up of time value and volatility). With deeper in the money options you pay less and less for intrinsic and extrinsic value. If the stock goes nowhere, you lose less value in your option because you have the intrinsic value that will be dollar for dollar the amount the option is in the money.
Say you buy an option $10 in the money and pay $13 for it. An at the money option costs $5. On the in the money option you have paid $3 for time as the remaining $10 is how much money the option is worth at expiration if the stock holds steady. The at the money option at expiration is worth $0. If you hold to expiration and then sell, you lose only $3 on the in the money option versus $5 on the at the money.
THE PLAYS:
Note for reading plays: A "prior high" refers to the high at the start of a base.
All prices are current as of the close of trading Wednesday.
BEST PLAYS: HOTT has pulled back to support (10 day MVA) though volume isn't quite where we want it (above average on the pullback), but there is no mistaking the double bottom with handle. Buy point is 35.01 on volume of about 950,000 (UHO KF, November $35 calls to buy). The company came out with good August sales numbers after the bell. AOC tested back to the 50 day MVA in its 10-month cup with handle base. Volume has been nicely below average in the handle and volume surged Wednesday while AOC moved up from the support. If it can get over 38 we will let you know; handle high is at 39.30 (buy point 39.43). ATR made good move up while volume remained strong though lower. Its buy point is at 37.13.
Best Plays:
1) BGEN: Made a good move on strong volume.
2) TUP: Surging on strong volume in an ascending wedge pattern.
3) IDPH: Still an orderly price pullback.
NEW PLAYS:
BGEN (Biogen--$60.66; +1.56; optionable): Drugs
http://biz.yahoo.com/p/b/bgen.html
STATUS: Biotechs still look good, and BGEN made a solid move off its 18 day MVA today (at 59.18) on surging volume (3.85 million; avg. 3 million). The stock has been bouncing in a short ranging pattern for the last 7 days, and if the market can give us a bit of rally we look for a breakout move over the August high of 61.70. Once again the stock broke back above its 200 day MVA (60.20). Good money flow. Target: 67.50, then 71
BUY POINT: 61.83 on continued rising volume. Stop: 60 (just below the 200 day MVA).
POSITION: Stock and/or (BGQ JK).
TUP (Tupperware--$24.77; +0.87; optionable): Containers.
http://biz.yahoo.com/p/t/tup.html
STATUS: TUP was rolling a bit between 22 and 25, but on the last move down caught support at its 50 day MVA (23.48). The stock has made a nice bounce from there, and today got an infusion of volume as it moved up near the recent highs (July high at 24.98) in an ascending wedge pattern. A promising move, and on a break out of the recent range we will look at positions, targeting the 28.50-29 range. Relative strength and money flow have broken out.
BUY POINT: 25.10 on continued strong volume (today 360,900; average 221,000). Stop: 23.34
POSITION: Stock and/or October $22.50 calls to buy (TUP JX - check your broker for open interest, delta, etc. as unavailable at the time of writing).
End Part 1 of 2
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