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world stock market, us stock market
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1/31/05 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Monday: AAPL
Buy alerts issued: USNA (bonus); MER; JJZ
Trailing stops issued: None issued
Stop alerts issued: LMT
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:
- Market surges on Iraq, OPEC, lower oil but action is bifurcated.
- Personal income soars on MSFT dividend.
- Chicago PMI tops expectations, shows businesses still confident.
- New home sales rise but below expectations.
- Stocks rebound to session highs at close but true strength was matched by weakness.
- Now the focus on interest rates and the Fed.
Iraq election lowers oil early, bolsters some investor confidence.
Investors breathed a sign of relief as the Iraq election went off relatively well, remarkably so if you took the insurgents' word at face value. Apparently a greater percentage of Iraqi's voted in their election than US citizens did in our recent election. In any event it was an historic event that succeeded, and that removed some clouds from investors' minds.
More to the point in our minds (and as the action somewhat bore out), OPEC determined it would not cut production at this juncture nor did it officially change its price band where the cartel wants oil to trade. Though no official word was issued, those that spend their time watching OPEC told us that it was pretty clear OPEC wants price around $40/bbl as its unofficial target. With oil trading near $50/bbl that allowed OPEC to take a pass at this meeting.
Oil fell on the news, dropping over 2% as it traded close to $46/bbl early in the session. OPEC holding pat, oil prices almost $4 from $50/bbl; that was a good reason for stocks to rally. Moreover, some more merger activity, always good for some upside, added a bit of fuel. After the initial flush, however, oil started to work its way back. Indeed, it regained all of its $1 or so loss and added a dollar by the close. That strength sapped the market, and stocks started to peel back in the last hour. NASD shed 10 points in a half hour & was under stress before a last hour buy program pushed stocks back up to session highs at the close.
That late rebound put a better bow on the session than the action really was. Some sectors were excellent (small and mid-caps) while others were big question marks (NASDAQ, SOX, DJ30). SP500 closed above 1175 and the 50 day EMA on rising volume, but most of that volume was due to the small caps. They were the 2004 leaders, and they could be a portent of the rest of the market following higher. NASDAQ's low volume and SOX' weak tap at the 50 day EMA, however, will definitely need to take their lead from the small caps. The large caps were decent, doing what they had to do, but again, the strength was in the smaller issues. Nothing wrong with that, but NASDAQ and SOX are a heavy weight to try and drag with you.
In sum there was some character change Monday but it was not market-wide. NASDAQ was damn close to losing it in the last hour as oil rallied back. Oil not only did not get better, it got a bit worse after better than expected news from OPEC. That is one of the two key elements impacting the market right now. The other, interest rates, now takes center stage with the 2-day FOMC meeting starting Tuesday. We don't anticipate the Fed changing much in its official statement, but it will say the same thing about improving economic conditions and removing the accommodation policy at a 'measured pace.' It does not have to say much in the meeting because its members are saying plenty outside the meeting. Official policy is the measured pace but Fed governors are making noise outside the official lines that more action may be necessary. The market continues to hope for some change due to moderate economic reports, but the market will be disappointed. The Fed will continue its rate hiking campaign with an indefinite end given the sidebar comments outside of the official meetings.
THE ECONOMY
Microsoft's $32B dividend spikes personal income 3.7%. Fed to stay the course.
Take out the dividend and the gain was a modest 0.6%. Spending rose 0.8%, less than the 0.9% expected, but for the year up 4% above 2003 levels. Basically spending for the year reflected the continued economic improvement: steady, solid, but hardly flashy.
The price index for consumer spending (PCE) fell 0.1% less food and energy. Year over year this component grew 1.7%, a very modest rate. This is an inflation gauge the Fed purportedly watches closely, and the modest gains bolstered the idea in some that the Fed will consider easing its rate hiking.
The Fed is not going to stop raising rates or even thing about it until the Fed Funds rate is at 3%. Given its tougher talk since Thanksgiving, it is probably not going to stop until it is at 3.5% regardless of Greenspan's supposed 'flexible' approach to rates that does not use targets. In Greenspan's mind he has to get interest rates back to a level where the Fed has plenty of ammunition in the event it has to take some actions in the future. One of those actions (a worry at this point) deals with China and its eventual untying of its currency to the dollar. With China being one of our biggest trading partners, a sharp rise in the yuan versus the dollar would alleviate much of the problem with the trade gap (we make no headway versus China because dollar drops are matched by the yuan), but it would also have a very strong inflationary affect as prices of Chinese goods jumped as the yuan rose to find its natural level of equilibrium.
That puts the Fed and the Treasury in a hard spot down the road. Right now they prefer to say China needs to unhitch the yuan because the trade gap is a sore point in the political arena. If China said tomorrow it was going to let the yuan rise versus the dollar, there would not be a lot of sighs of relief at the Treasury.
Chicago PMI rises greater than expected.
62.4 in January was much better than the 59.8 expected and December's revised 61.9. All are well above the 50 level that separates expansion and contraction. The sub-indexes were positive. New orders rose to 65.8 from 64.9; employment posted a solid advance to 52.8 from 51.1; prices paid actually fell to 76.5 from 84.4. Positives across the board.
That was the twenty-first consecutive monthly gain. Sounds good and it is good news, but just what exactly is this indicator? It is not a measure of actual business actions. It is a sentiment survey of businesses as to what they think business is going to be like. They are estimating orders and plans to hire, spend, etc. Thus, as with any sentiment indicator, you have to put them into perspective. We have discussed this recently, but CEO's and other corporate executives are often still negative as the economy starts to turn and remain positive even as the economy shows hints of slowing.
We are not suggesting the economy is ready to fall out from under them, but the bond market action and the stock market's lack of stomach even on good news days is a combination that has often foretold slowing economic activity ahead. With a large part of the capital investment tax incentives expiring at the end of 2004, we wondered early last fall what would drive the economy in the event of a slowdown. Tax reform and social security reform would help tremendously, but those are in for a long fight. Right now those roads are too dark to see the outcome, and the market has not responded favorably after the bloom wore off of the presidential re-election.
New home sales edge higher but miss expectations.
Sales rose 0.1% but that was below expectations (1.1M actual, 1.2M annualized expected). Even with the lower levels it was still a record year for the housing market with an 8.9% gain (1.18M units). The lower sales pushed the inventory of available homes to 4.8 months (that is how long it would take to sell the current inventory at the current sales pace), the highest since June 2000.
The key to the housing market continues to be interest rates. Initially housing stocks fell on the news, but by the close they had firmed, rebounded, and were posting gains. Slower sales did not have a lasting impact on their price charts. The reason is lower interest rates. Despite Fed rate hikes on the short end, rates are falling, particularly the long end where home mortgages hang out. As long as rates stay low houses will sell, at least until the boomers start dropping off and the great demographic they are starts to sunset (in other words, the primary consumption engine in the US the past 50 years starts to die off).
That housing market strength keeps some economic activity in the future, but the bigger issue, again, are those interest rates that are falling even as the Fed raises rates and there are fairly rosy predictions about the US economy. The low rates are great for homebuyers, but something is not right in interest rate land. The stock market sell off this year coupled with the flattening bond yield curve is starting to suggest slowing. How the stock market trades from here could be very key into how the economy fares at the end of summer.
That puts the Fed in a very tight spot. It has to worry about China someday floating its currency versus the dollar and the inflationary those inflationary implications, it feels it still needs higher rates in order to fight world shocks (currency, energy, terror, etc.) with rate drops in the future, and it sees the bond market ignoring its rate hikes in something of an anticipatory reaction that moves right to weaker rates that would exist if the economy weakens. That is a very tough backdrop to have to set monetary policy against. It has to stick to its mandate, however, and not go astray and try to fight the trade gap via interest rates. Greenspan is trying to tell Congress to put a lid on the spending and make serious reforms as that is the best way to solve these dilemmas. I can only imagine he feels like a parent trying to communicate with errant teenagers, i.e. it would be easier to communicate with alien life forms.
THE MARKET
The advance was broad and some sectors were very strong. The small caps ruled the session and the mid-caps put in a solid session as well. They accounted for a significant share of volume on NYSE as they moved up off the 50 day EMA and attempt to break up the toppy patterns formed the past 10 weeks. The small caps were market leaders in 2004, turning higher ahead of the market in most rally attempts. Thus we do not underestimate the move they showed Monday.
SP500 advanced on solid NYSE volume as well, but much of that trade and the best gains were found in the small and mid-caps. NASDAQ rallied through 2054 in a late move to recapture that level after it was frittered away to start the last hour. Volume did not follow it higher. SOX tapped at its 50 day EMA and did not even participate in the late rebound. DJ30 still looks like it is wheezing below the 50 day EMA, and when you look at a chart of a stock such as IBM you understand why.
The main thing that bothered us was the strength of the move. NASDAQ lacked volume and tried to give the move away. DJ30 lacked volume and made little headway as it still languishes below the 50 day EMA. The last time we had a bifurcated move such as this was when the market failed its rebound and follow through attempt in the first two weeks of January. SP500 rallied on strong volume while NASDAQ sat back and watched the move. The result was an immediate reversal the next session.
Thus while there was some change of character Monday, it was not as broad as the breadth indicates. A lot of stocks can rise on little volume. There was good NYSE trade, but once again the move key support from a key index. The market will now look to the Fed and interest rates in addition to oil. Monday the oil news was a bit better but oil prices moved back up toward $50/bbl with a $2+/bbl intraday swing. The Fed is going to raise interest rates and it is likely not to give any hint it is ready to stop its higher rate march.
Market Sentiment
VIX: 12.82; -0.42
VXN: 18.43; -0.15
VXO: 12.37; -0.96
Put/Call Ratio (CBOE): 0.77; 0. Held steady as the market rebounded, still at what is considered the high end of the range. Of course, VIX is still at what is considered the low end of the range, or more accurately, it is well below what is considered the low end of the 'normal' range from 20 to 30. It has not been at 20 since August.
NASDAQ
Rallied back late to close at the session high but it was showboating. Volume was quite weak, failing to even approach average as it posted the lowest level of the year. Hard to call that a strong session.
Stats: +26.58 points (+1.31%) to close at 2062.41
Volume: 1.848B (-12.05%). As noted, very weak-kneed volume as it failed to move toward average on the session and was the lowest of the year. No accumulation of tech stocks as they moved through near resistance and toward the 50 day EMA. Not a strong move.
Up Volume: 1.422B (+644M)
Down Volume: 392M (-908M)
A/D and Hi/Lo: Advancers led 2.59 to 1. Excellent breadth as the Iraq election led to broad buying. It just was not strong buying.
Previous Session: Decliners led 1.42 to 1
New Highs: 116 (+48)
New Lows: 32 (-12)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Technology stocks posted the third best advance on the session (followed small caps and mid-caps) as they climbed over near resistance at 2050 to 2054 and moved toward the bottom of the January consolidation range at 2066 to 2070. Volume failed to follow, and while NASDAQ may move on up to fill the gap down from 8 sessions back and may even tap a the 50 day EMA (2077), unless it garners some more volume on the move its likelihood of success is limited. Volume shows conviction of buyers. If more buyers sold on the way down and fewer and fewer participate on the rebound, at some point (usually strong resistance) the index runs out of buyers and the drop can be ugly. Perhaps the small caps will provide the early leadership and NASDAQ was just warming up before sprinting with them. We will see.
NASDAQ 100 gapped higher over the 10 day EMA (1517) but as with NASDAQ, volume was pitiful. Even QQQQ volume was pitiful as well, coming in well below average. Likely to find resistance at the 18 day EMA (1533), well below of the 50 day EMA (1548) where it gapped lower two weeks back.
SOX posted a 1.1% gain for fourth place overall Monday, but as with NASDAQ, its move was less than superlative. It held some gains but closed over 3 points off its high (two-thirds of its gain) after tapping toward (not at) the 50 day EMA (410.22) on the high (407.24). It did not participate in the late rebound, and that gave us some more insight into tech stocks in general.
SP500/NYSE
SP500 cleared 1175 and then managed to retake the 50 day EMA in a late rebound after giving it up intraday, and it did so on rising trade. It showed the volume and cleared resistance, an important step.
Stats: +9.91 points (+0.85%) to close at 1181.27
NYSE Volume: 1.681B (+2.23%). NYSE volume was running light and then blasted higher in the last half hour as stocks recovered and SP600 surged to a session high. Most of the good volume was found in the smaller issues.
Up Volume: 1.321B (+677M)
Down Volume: 348M (-629M)
A/D and Hi/Lo: Advancers led 3.33 to 1. Outstanding breadth. The small and mid-caps led, but the large caps were posting gains as well; you don't get that kind of breadth without everyone pitching in. Question is, are the small caps leading the next leg higher as they did in 2004 or were they just showboating? You cannot discount the strength of that move even with NASDAQ positing a very mediocre session.
Previous Session: Decliners led 1.14 to 1
New Highs: 226 (+125)
New Lows: 9 (-15)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Gapped higher and succeeded in its second attempt of the session to clear the 50 day EMA (1179.30) after jumping through 1175 on the first run of the day. It tested that move in the early afternoon and rebounded, looking solid. Then it followed NASDAQ lower, slipping below the 50 day EMA and looking as if it was in trouble, threatening to turn that solid upside volume into solid downside volume. That last half hour surge recaptured the 50 day. It has made the step it had to make, helped by the small cap volume. Now we see if it can lead better than last time NASDAQ failed to follow a strong volume SP500/SP600 move higher.
SP600 was the star of the session with another strong session similar to the one last Wednesday. It cleared the 50 day SMA (319.19) and the January high at the same time. It has not broken up the toppish pattern formed the past 10 weeks, but it was a strong start to try and do so. In 2004 the small caps often triggered moves higher; a strong move but NASDAQ needs to follow as well.
DJ30
The blue chips could not put together the same type of move as the small caps. The index tapped toward the 50 day EMA (10,522) on the high (10,510.19) and backed off before that late rally helped it close the session with a decent look to it. Volume was above average so it was no weak session similar to NASDAQ, but volume was lower than Friday. It still has its work ahead of it at the 50 day, but it was an improvement given the solid volume.
Stats: +62.74 points (+0.6%) to close at 10489.94
Volume: 358 million shares Friday versus 269 million shares Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
The FOMC starts its 2-day meeting Tuesday as it meets to discuss the economic data and then conclude that the economy is still strengthening, that inflation appears to remain in check, that the employment market continues its steady improvement, and thus its policy accommodation can be removed at a measured pace. Of course we won't know that until Wednesday at 2:15ET, so the market has some time on its hands to think about the Monday move, what OPEC did, how oil prices responded, and how more and indefinite rate hikes could affect the economy.
That will remain the focus of the market despite the Iraq election. Perhaps investors are now viewing $50/bbl oil indefinite rate hikes as livable. That was not the case at the end of 2004 when oil prices broke lower and threatened a deep collapse, social security and tax code reform seemed something within immediate reach, and rate hikes might not be that prevalent in the future.
That is not the case today, but as we noted above, the strong small and mid-cap moves cannot be brushed off. The NASDAQ move was the hole in the boat and the wildcard. Last rally attempt that was the Achilles heel and stocks reversed. This time the small caps have taken the lead and maybe they will coax their former leader-mate NASDAQ to come with them.
There were some solid moves higher; you cannot have that kind of strength in the small and mid-caps without getting some good moves. A lot of the breadth, but not all of those moving up where making breakouts. A lot of stocks rallied; 3+:1 breadth shows that. A lot of stocks were in downtrends and were rebounding on so-so volume. It was not a huge upside success just as it was not a weak rally. It just has that lagging NASDAQ that was the anchor chain in the last rebound attempt.
Strong move with a questionable last hour. It recovered so it was not a failure. After the Monday move we will see what kind of strength NASDAQ and SP500 show. We see many stocks that started breakouts or are on the verge; those will provide plays on a further rally if volume holds up and NASDAQ joins in. If they continue the march higher on volume we will move in. Given the lack of power late and in NASDAQ and the continued action in the bond market, however, we would not be surprised to see the market lose some of the momentum Tuesday, maybe pretty quickly.
Support and Resistance
NASDAQ: Closed at 2062.41
Resistance:
The 18 day EMA 2067 may provide some resistance.
2066 to 2070, the bottom of the January lateral move.
The 50 day EMA at 2077
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:
2050-54, prior resistance and the June high
2047, the June high.
2000
The 200 day SMA at 1976
S&P 500: Closed at 1181.27
Resistance:
1185, the top of the November consolidation range.
The 50 day SMA at 1188.71
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:
The 50 day EMA at 1179
1175 second high in that double top that spanned late 2001.
1157 is solid support from January through March consolidation tops.
The 200 day SMA at 1134.70
Dow: Closed at 10, 489.94
Resistance:
The late April, June peaks at 10,478 to 10,512
The 50 day EMA at 10,523
Price consolidation at 10,600 level (10,592 is the 50 day SMA)
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 10,280
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
January 31
Personal Income, December (08:30): 3.7% actual versus 3.3% expected and 0.4% prior (revised from 0.3%)
Personal Spending, December (08:30): 0.8% actual versus 0.9% expected and 0.4% prior (revised from 0.2%)
Chicago PMI, January (10:00): 62.4 actual versus 59.0 expected and 61.9 prior (revised from 61.2)
New Home Sales, December (10:00): 1098K actual versus 1200K expected and 1097K prior (revised from 1125K)
February 01
Auto Sales, January: 5.3M expected and 5.9M prior
Truck Sales, January: 7.8M expected and 8.7M prior
Construction Spending, December (10:00): 0.5% expected and -0.4% prior
ISM Index, January (10:00): 57.0 expected and 57.3 prior
February 02
FOMC policy announcement (2:15): 25 basis point hike expected, no changes in statement.
February 03
Initial Jobless Claims, 01/29 (08:30): 330K expected and 325K prior
Productivity-Preliminary, Q4 (08:30): 1.8% expected and 1.8% prior
Factory Orders, December (10:00): 0.6% expected and 1.2% prior
ISM Services, January (10:00): 61.0 expected and 63.9 prior
February 04
Non-farm Payrolls, January (08:30): 200K expected and 157K prior
Unemployment Rate, January (08:30): 5.4% expected and 5.4% prior
Hourly Earnings, January (08:30): 0.2% expected and 0.1% prior
Average Workweek, January (08:30): 33.8 expected and 33.8 prior
Michigan Sentiment-Rev., January (09:45): 96.0 expected and 95.8 prior
End part 1 of 3
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world stock market
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