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1/27/05 Technical Traders Report Update
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Thursday: None issued
Buy alerts issued: OEX
Trailing stops issued: None issued
Stop alerts issued: PXP
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 beat around the bush at next resistance.
- Durable goods post second solid showing with strong business investment in December.
- Jobless claims, now hardly watched, continue to trend toward 300K.
- Stocks avoid a reversal at resistance as small caps continue trying to pull the market with it.
- MSFT beats street, tries to lead after hours, GDP released pre-market. Be wary of gap higher Friday.
Stocks break through near resistance but cannot hold the move into the close.
After two upside sessions stocks started slightly softer, and that brought in some buying that pushed NASDAQ and SP500 up to resistance in the morning session. Indeed, SP500 broke through the first level of resistance at 1175, hitting 1177.50. Once there, however, the bids dried up. NASDAQ formed a two hour head and shoulders while SP500 double topped. That sent stocks lower with the selling tempo increasing after lunch. SP500 actually broke to new session lows in the afternoon. Volume did not rally on the selling, indicating there were no more sellers in the afternoon than buyers in the morning. That gave a late buy program an opening, and stocks bounced at the start of the last hour. That move ran out of gas at resistance, and stocks then drifted laterally into the close.
That left NASDAQ and SP500 just below that first resistance, holding basically flat on flat volume and flat breadth. That pretty much describes the session: holding position as it sizes up the support it just recently crashed through. It was a minor victory for bulls in that stocks did not sharply reverse after the test. Indeed, they were on the verge of doing so but found new life at the close.
Still, NASDAQ and SP500 have the look of indices that still have to find bottom once more before rallying substantially higher. They have rebounded to important resistance after the second leg lower in their current selling frame that started at the new year. They may continue to struggle at these levels for a few more sessions, but after breaking key support they would typically test lower once more to complete the down cycle. Perhaps MSFT earnings will boost them through the resistance without further selling, but we suspect an upside open Friday will seal some further selling. Once more Friday has the look of a rubber match as stocks have fought back just to face significant resistance.
THE ECONOMY
December durable goods post solid gain, November revised higher.
The 0.6% gain was close to the 0.7% expected. Excluding transportation they rose 2.1%, well ahead of the 1% expected. That was also the first ex-trans gain since September. Aircraft orders fell 16.7% for civilians and 32% for defense. That put a damper on the news, but the report had other very strong underpinnings.
For one, November was revised higher to 1.8% from 1.4%; upward revisions are always good to see as that shows the trend strengthening. Non-defense orders excluding aircraft, the proxy for business spending, rose 1.8%, showing another strong gain. Shipments rose 2.1%. Computers and electronic product orders (includes computers and telecom equipment) jumped 6.4%. Machinery orders were up.
This is all very good, but it is also very expected. Q4 saw the expiration of some bonus depreciation and the tightening of the $100K equipment expensing incentive. Thus many companies made their expenditures in Q4 as opposed to waiting until the bonuses expired. We hear some anecdotal evidence that spending has continued in January, but we are not anticipating Q1 being anywhere near the strength of Q4 2004 because expenditures were pushed through in Q4 not only to get the expense for that year's tax return but to get the benefit of the extras available
Jobless claims showing a nice trend lower once more after jumping over holidays.
Over the holidays we saw weekly jobless claims jump up to and over the 350K range. At the time we noted that the seasonal adjustment effect was likely skewing the numbers higher even with the additional job cuts announced. Certainly it was not the announcements that caused the jump; cuts are announced and then implemented over time. An announcement, the job termination and the jobless benefit filing do not all occur in one week.
Claims rose 7K to 325K, bumping higher but still a very good level as jobless claims start to crowd 300K. Indeed, last week was revised lower to 318K from 319K. The 4 week average and continuing claims both rose, but that was a holdover from the earlier numbers inflated by the seasonal adjustments that skewed the results in the way only a government 'adjustment' could do.
In sum, jobless claims are moving toward 300K again. That is an important level because it is the level the Fed was fretting over back in the late 1990's when it claimed the worker pool was getting too shallow and that could cause excess competition for employees, bidding up their salaries, and leading to the so-called 'wage led' inflation. That form of inflation, mind you, is another one of the Fed's boogeymen used to justify rate hikes but that has no empirical evidence to support it.
THE MARKET
Small and mid-cap stocks were the leaders Thursday in what was mostly a leaderless session. The sectors that performed the best were once again more defensive as medial and health along with oil and gas led higher. The last hour rebound, however, kept stocks generally flat as they came back from an afternoon sell off that threatened to lead to a more serious breakdown from resistance.
As it turned out stocks spend a second evening poised at near resistance following a rebound from the second leg of selling since the year started. Volume was almost dead on with Wednesday, meaning it was still above average as stocks stalled in place. Stocks ran up and down three times Wednesday, covering a lot of ground but going nowhere, similar to my dog on runs; it runs 2 miles for every mile I run.
NASDAQ's pattern suggests it is ready to test lower again from the 10 day EMA for its third (and most likely final) run lower during this correction. DJ30 suffered from CAT scratch fever, and that only made its pattern look ready to turn back over. SP500 is similar as it showed a doji (as did NASDAQ) below key resistance. MSFT, a DJ30, SP500, and NASDAQ stock, may try to turn the tide Friday after its numbers beat the street and gave analysts something to talk about.
The small caps, however, may very well hold the key to any upside for the market overall, at least from this level. SP600 has outperformed the other big indices this week, holding key support at 310 and rebounding. It paused as well Thursday, tapping at and closing below its 50 day SMA, the next point of resistance as it tries to hold the move off support. They are not looking great at this level and the pattern still has a more bearish look to it. Unless MSFT is able to work a character change on the big money the patterns suggest further downside at some point over the next few sessions.
Market Sentiment
Bears versus bulls: Little change in this sentiment level that gauges whether the market has any ammunition on the sidelines to continue a move. The basic idea is that when most investors are bullish and few are bearish, everyone who wants to be in is already in and there is no one or money waiting on the sidelines to fuel further gains. Bulls held roughly steady at 56%, just over the 55% considered a bearish sign; close enough for horseshoes. Bears stand at 24%, easing back some toward that 20% level that suggests a bearish bias.
In short, both are pretty extreme and both indicate some complacency. We know that fund flows dried up in January; that means no new money coming into funds. We also know, however, that there was still money to be put to work when the selling started. And that selling was not reinvested in the market, so it is standing around looking for a home as well. Thus there is some ammunition out there, just no catalyst to send it into the market. It can sit around for awhile before conditions are considered ripe.
VIX: 13.24; -0.2. VIX has retreated back to the 50 day EMA during the last selling. The pullback after the rally suggests there is more downside yet to come before this correction is over.
VXN: 18.58; -0.34
VXO: 12.78; -0.29
Put/Call Ratio (CBOE): 0.84; +0.02
NASDAQ
NASDAQ 'rallied' up again to test near resistance on continued above average volume, showing a loose doji at that level after two comeback sessions.
Stats: +1.06 points (+0.05%) to close at 2047.15
Volume: 2.134B (+0.16%). Volume bumped slightly higher, remaining above average as NASDAQ ran in place below key resistance.
Up Volume: 1.081B (-479M)
Down Volume: 1.028B (+485M)
A/D and Hi/Lo: Decliners led 1.06 to 1. Flat like the session.
Previous Session: Advancers led 2.29 to 1
New Highs: 74 (+4)
New Lows: 46 (+2)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
A softer open and then a recovery, but NASDAQ could not punch through 2054. It managed to clear some resistance at 2047 intraday, but by the close it had faded back to that level. Basically it was a nothing session that you can look at as half full or half empty. It avoided a sell off and actually recovered in the last hour. MSFT after hours could provide impetus to break this resistance. On the other hand, it churned some below key resistance and the pattern still looks ready to continue at least a bit of the trend lower. It has countered some of the distribution from last week with some accumulation of its own., but it will have to show it can clear resistance at the 10 day EMA (2053). Even after that is has the 50 day EMA (2079) and 2100 to top.
NASDAQ 100 showed a doji below the 10 day EMA on rising volume. It is stalling a bit but did just rebound off of the 200 day SMA (1468), an important support level. MSFT is going to try to break it higher.
SOX moved up through the 18 day EMA (402.28) and some resistance at 400. Still trending lower and below the 50 day EMA (410.92).
SP500/NYSE
Large caps struggled below 1175 once more, managing to clear that resistance but running into more. That sent it back below 1175 to think about it some more.
Stats: +0.48 points (+0.04%) to close at 1174.55
NYSE Volume: 1.601B (-4.77%). Volume backed off slightly but was still solid and above average as SP500 ran in place. That is a sign of some churning, but with the modest bounce that is reading to much into it.
Up Volume: 918M (-180M)
Down Volume: 666M (+161M)
A/D and Hi/Lo: Advancers led 1.31 to 1. Small caps propped up the breadth. That is okay as breadth was solid on the upside sessions.
Previous Session: Advancers led 2.51 to 1
New Highs: 154 (+53)
New Lows: 19 (-7)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 worked past 1175 on the high (117.50) but could not really challenge the 50 day EMA (1180). After two up sessions it took a day off though it would have been better with lower volume. As it was there was some churn as noted, but we have to keep an eye on the bigger picture. SP500 has made its second down leg in the selling, has rebounded, and is now slowing at resistance. It showed good volume on the rebound, so it was not a slacker; if it gets the right impetus it could make the break higher. Still it needs more basing to set up the next good upside move.
The small caps tapped at the 50 day SMA (319.06) on the high and faded back. Still holding the 50 day EMA (314.67) and above the neckline of the head and shoulders pattern at 310. It is the one index (along with the mid-cap SP400) that still has not completed its head and shoulders base.
DJ30
CAT was the problem for DJ30; without its sell off the blue chips would have closed basically flat and volume would have eased. As it was it stalled at the 10 day EMA (10,495) and is still below the 50 day EMA (10,528). After a weak bounce it still looks ready to roll back down.
Stats: -31.19 points (-0.3%) to close at 10467.4
Volume: 269 million shares Thursday versus 247 million shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Advance Q4 GDP is to be released before the open and there is MSFT earnings that were helping bolster after hours trade. NVLS and SNDK also reported good results, but those stocks are confirmed downtrenders, not leaders ready to make the break higher out of an accumulation pattern. They will help to offset BRCM's less then well received earnings and may be enough to bounce stocks higher back through resistance on the open.
An early bounce may hold but we will be quite wary of any early strength. NASDAQ, SP500 and DJ30 are still in below resistance after rebounding in the second down leg of this 2005 correction. We continue to anticipate some additional downside, but also note that the rebound was on solid volume and breadth, at least as far as SP500 was concerned.
Again, we anticipate any early bounce has more chance of failing than leading to a sustained rally at this juncture. We will be patient once more and let the indices make their test; as seen Thursday and discussed Wednesday night, they can clear initial resistance intraday and still end up failing the move. With the minute by minute market analysis on the financial stations investors become too impatient and tend to ignore the bigger pattern and picture. It is a constant fight and we fight it everyday just as every other investor. Thus, with the bias still to the downside despite the rebound this week we will be patient, looking at only the strongest for the upside positions, and at that still give them time to really show us a strong move. It is still a 'show me' market with respect to the upside recovery, particularly with the Iraqi election on Sunday.
Support and Resistance
NASDAQ: Closed at 2047.15
Resistance:
2047, the June high.
2050-54, prior resistance and the June high (the 10 day EMA is at 2053)
2066 to 2070, the bottom of the January lateral move.
The 50 day EMA at 2079.30
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:
2000
The 200 day SMA at 1975
S&P 500: Closed at 1174.55
Resistance:
1175 second high in that double top that spanned late 2001.
The 50 day EMA at 1180
1185, the top of the November consolidation range.
The 18 day EMA at 1181
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:
1157 is solid support from January through March consolidation tops.
The 200 day SMA at 1134
Dow: Closed at 10, 467.40
Resistance:
The late April, June peaks at 10,478 to 10,512
The 50 day EMA at 10,528
The 18 day EMA at 10,537
Price consolidation at 10,600 level
10,754 is the February high
10,975 - 11,000 from Q4 2000, Q1 2001
11,350 from the May 2001 highs
Support:
10,400, the bottom of the November/December range
10342 the early September peak.
The 200 day SMA at 10,279
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
January 25
Existing Home Sales, December (10:00): 6.69M actual versus 6.80M expected and 6.92M prior (revised from 6.94M)
Consumer Confidence, January (10:00): 103.4 actual versus 101.3 expected and 102.7 prior (revised from 102.3)
January 27
Durable Goods Orders, December (08:30): 0.7% expected and 1.4% prior
Initial Jobless Claims, 01/22 (08:30): 330K expected and 319K prior
Help-Wanted Index, December (10:00): 37 expected and 36 prior
January 28
GDP-Advance, Q4 (08:30): 3.5% expected and 4.0% prior
Chain Deflator-Advance, Q4 (08:30): 2.1% expected and 1.4% prior
Employment Cost Index, Q4 (08:30): 0.8% expected and 0.9% prior
End part 1 of 2
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