* * * *
3/02/05 Technical Traders Report
* * *
Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts issued: COGN; GMT; JCOM; VRNT; ASTM (bonus)
Trailing stops issued: None issued
Stop alerts issued: None issued
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:
- Soft start, rally on decent trade, then oil spikes and stocks fade.
- Greenspan holds fast on social security, spending cuts over tax hikes.
- The silent killer: oil rises over $53/bbl even as inventories rise.
- Unable to punch through old highs, SP500 works laterally, still setting up the next attempt.
Late oil spike puts an arrow in a decent market move.
Futures were down pretty hard Tuesday and after the end of month/beginning of month shuffling, it was a real question whether stocks were going to roll back over here at the former highs (at least for SP500, DJ30, SP600, SP400). Stocks sold but then SP500 held well above 1200 on the low; that helped trigger the rebound that started almost immediately after the opening bell. Then Greenspan's text and testimony unfolded with strong support for private social security accounts and oil inventories came in much stronger. That bolted stocks higher.
SP500 rallied to next resistance at 1215 and spent over 2 hours working on that level with a lateral move. Just after lunch, however, oil started to flex its muscle. Despite oil inventories more than doubling expectations, oil held pretty much steady in the morning session. In the afternoon it started to run, spiking over $53/bbl on the close. That poked a hole in the rally and stocks struggled to close near the flat line.
Volume was stronger on NASDAQ all session. That was good during the move higher but turned into an albatross as the gains slipped away. Not a huge jump in volume, however, and basically was more of the same for NASDAQ. That still does not get to the better price/volume action we have been looking for. NYSE volume on the other hand was lower, and with the basically lateral move along the 10 day EMA, it was actually good action as it holds its gains and sets up for the next breakout attempt.
In the end it was a disappointing day but a not a clearly negative session. SP500 was unable to make the break higher, but it continued its consolidation on lower volume. NASDAQ was less clear as it churned on some higher volume below important resistance at the 50 day EMA. That is more or less par for NASDAQ of late, however, as it continues to work on its base. Thus not a whole lot of change as stocks continue to try and set up for the next break higher. They did not roll over and indeed managed to rebound from early selling. They still need to show the breakout, however, to change the market character away from the distribution.
THE ECONOMY
Greenspan addresses House Budget Committee, supporting private accounts and spending cuts.
The comments after Greenspan's testimony and Q&A showed just how entrenched the sides are with respect to private accounts. Those that formerly praised Greenspan chided him for his apparent abandonment of deficit reduction principals, claimed he was not the Greenspan whom they had worked with before, etc. That is pretty much a sign that they have drawn a line in the sand, a line that they have to draw. Why? Because much of their base is built upon those dependent upon the government for just about everything from housing to food to healthcare to retirement. If those people got to put 4% of their SS taxes in their own accounts and watch them grow for several years they would see the power of free markets and individual initiative, and there would be mass defections from the party.
In truth most of the comments about Greenspan's testimony were simply incorrect. Greenspan did not abandon his deficit reduction principals. He clearly said the deficit had to be reduced or there would be higher interest rates (a dubious claim but consistent with what he has said the past ten years) that would lead to economic "stagnation" and the inability to pay for entitlements and a lower standard of living.
What really got to some of the Congress, however, was that Greenspan was also very clear that the deficit should be cut by reducing spending and not raising taxes. He expressly said raising taxes would hurt the economy and the way to "bring the federal house in order" was to cut spending. Adding insult to injury he explained that tax cuts do not equal federal spending. That seems intuitively clear: allowing tax payers to keep more of their money is not spending. There was a lot of twisting in the wind after his remarks.
Will this have any impact on the debate? One can only hope. There is so much misinformation flying regarding what will happen if there are private accounts or no private accounts. One thing is certain: if nothing is done there will be a shortfall in a very short period, and estimates put the shortfall in 10 to 12 years around 27%. We know how that will be handled if we wait: a tax increase on everyone who works in the form of higher payroll taxes. Some in Congress have been running these numbers, and to make up that size of a deficit in short order would take a hike of 15% or more in payroll taxes. That is a shocking tax hike. Those worrying over the transition costs of changing SS into a viable ongoing entity for fear of leaving more debt to future generations conveniently and disingenuously leave out this staggering detail. Not only will it severely retard disposable income for education, housing, eating and simply living, it will slow the economy and yes, lead to that 'stagnation' Greenspan is warning against.
Greenspan actually gets a few questions about the economy.
The House Budget Committee asked a lot more pertinent economic questions than the Senate Banking Committee. Taxes were discussed and Greenspan opined that he hoped the tax cuts would be made permanent. He was asked about the future of interest rate hikes and he dodged that question as he always does. Other questions focused in on the trade deficit and foreign investment in the US.
With respect to the trade deficit, Greenspan had a chance to set the record straight, but he only answered the question in the context it was asked. A Congressman wanted to know what the ramifications of the trade deficit were on US citizens. Another asked what would happen if the foreign investment in the US ceased, referring to some recent signs that there was some possible divestiture.
Greenspan made a pretty clear and unequivocal statement: the recent moves out of the dollar were limited and were technical in nature. A large trade gap may at some point down the road lead to further and more substantial divestiture, but no one knows at what point that would happen if ever. Wow. That was a reversal from his statement at the central bankers' convention in November were he intimated that there could be problems from a wide trade gap and that investors should already be hedged against possible inflation caused by such a deficit. He waffled on the issue as to why there was a trade gap. He only discussed what we wrote about last night, i.e. it is the US consumer deciding to spend his or her money on foreign goods in greater quantity than others bought our goods. He left out the key ingredient: the rest of the world's economies are perennially in no condition to buy any substantial amount of our exports. The lower dollar has helped a bit, but overall foreigners just don't have the disposable income that we have because of overregulation, over taxation, high unemployment, etc. Not to mention that many economies are specifically geared to provide goods to the US consumer and not buy our exports. They are more than happy to fund the deficit and keep the US consumer buying their goods.
We sure wish Greenspan had been this clear on some of these issues over the past 5 to 10 years because we would all be better conditioned to accept the truth and make real changes as opposed to adding bandaids onto current problems and passing them on to the next administration and generation. If SS had truly been fixed in the 1980's we would not be worrying about it know and could focus on Medicare. Of course we may have already dealt with Medicare by this time because we would have seen the success of social security. Better late than never as the saying goes, but there is another saying more powerful when you deal with Congress: make no decision today that could cost you votes tomorrow. That does not mean just taking unpopular positions. It also refers to embarking upon courses of action that will cost you a chunk of your political base even though it is the right thing to do.
Oil rises despite inventory hikes.
Oil closed over $53/bbl Wednesday. The surprise was how it and gasoline futures reacted to some pretty decent inventory numbers. US oil inventories rose 2.4M bbl versus the 1M expected. Distillates were the weak link, falling 1.8M instead of the -1.2M expected. Gasoline rose 1M bbl, basically in line. Moreover, gasoline inventories overall were the highest since 1999 and 20M bbl greater than they were at this time in 2004.
Nonetheless, oil held steady during the morning and then spiked through $52 and then $53/bbl on the way to the close. Gasoline futures hit a record high at $1.47/gallon even as the inventory levels hit record highs. Once more it appears there is a bit of froth in the oil market as shown by the recent spikes on weather worries even as OPEC says it won't cut production (though it does say we need to get used to prices in the forties).
So should we short oil and strike up the band and sing back to the thirties here we come? Nah. At best we could get something in the lower forties. As we noted before, oil looks awfully comfortable with a home base around $45/bbl. That is not a good thing for the economy longer term. It has yet to slow things down, at least nothing we have yet been able to specifically identify, but we need to wait for that $2/gallon gasoline this summer. Ground transit carriers are pushing 14% price increases based on higher fuel costs. That means our goods will cost more. Less disposable income. There are a lot of ramifications to continued higher oil prices.
One commentator said he was not worried because Greenspan did not mention oil on Capitol Hill. Okay. Last summer there was a slowdown that coincided with gasoline spiking over $2/gallon. Sustained pressure from higher energy prices takes its toll. It has done so over and over in the past. With rising interest rates as well, a lot of headwinds are being created. For now the economy is strong enough to push through them. That is not going to be the case indefinitely. Get a bit of weakness and something foolish like a hike in payroll taxes and you have an economic problem on your hands. We will keep our eyes open down the road with respect to this issue.
THE MARKET
DJ30 actually broke through to a new post-crash high Wednesday. SP500 was within a stone's throw of the same level. Neither could hold up into the close, however, fading on the close. It was an ice-cracking foray, banging up into the resistance to tray and break through. The volume was not there Tuesday to do it, but the failure was not necessarily a disaster. The indices did not reverse and sell after making the attempt. They still have not broken through and changed the character of the market, but the ability to hold the moves to this level and work laterally on lower volume is not bad action. It can be a move where the market catches its breadth and sets up for the real break higher. It has not done so as of yet, however, and those distribution sessions are still out there. Again we take the position that it has to show us that change of character, but it does not hurt that the small and mid-cap indices have already made the break higher.
Market Sentiment
VIX: 12.5; +0.46
VXN: 18.2; +0.42
VXO: 12.59; +0.81
Put/Call Ratio (CBOE): 0.81; -0.07
NASDAQ
Rallied to the 50 day SMA on the high but then fading back below the 50 day EMA on the close. Volume edged up to average as it basically ran in place.
Stats: -3.75 points (-0.18%) to close at 2067.5
Volume: 2.029B (+2.66%). Volume edged back above 2B, moving higher than Tuesday by a hair. A bit of churn below the key resistance at the 50 day SMA as on 2-15-05 when it last tested this level. It faded from that level to form the second leg in its potential double bottom. Price/volume action has not been terribly constructive but it has been mixed and with overall lower trade, and that is often what we see in a base.
Up Volume: 788M (-643M)
Down Volume: 1.219B (+696M)
A/D and Hi/Lo: Decliners led 1.29 to 1. Very modest downside breadth just as there was modest upside breadth Monday.
Previous Session: Advancers led 1.5 to 1
New Highs: 108 (-19)
New Lows: 46 (-12)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
SP500/NYSE
Reached a couple of points shy of the post-crash recovery high and then faded back to close basically flat on lower volume. Working laterally as it holds its gains. Not bad.
Stats: -0.33 points (-0.03%) to close at 1210.08
NYSE Volume: 1.567B (-9.23%). Volume dropped as NYSE indices held basically flat. Not bad volume action as it holds its gains and looks for the next try at the old high.
Up Volume: 746M (-384M). A stalemate between up and down volume.
Down Volume: 777M (+224M)
A/D and Hi/Lo: Decliners led 1.16 to 1. Very modest.
Previous Session: Advancers led 1.8 to 1
New Highs: 178 (-25)
New Lows: 20 (+2)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Reached to 1215.79 on the high just short of the 1117.90 post-crash high. It is working laterally over the 10 day EMA (1203), not a bad move as suggested Tuesday. A lateral move on lower volume forms a further handle and sets up the breakout even better. Nice 9 week lateral move that has used the 50 day EMA (1192) as support. It still has to show us the move.
The small caps held steady Wednesday on the lower NYSE volume, showing a doji on the candlestick pattern just a day after narrowly notching a new all-time high. No powerful breakout yet, but in very good shape as long as the market can get more volume on the upside before the week is out.
DJ30
The blue chips moved to a new post-crash high (10,869) for a brief period before turning back and posting a lower volume loss. No major reversal, just a scouting mission into new high territory (the old high is from late December/early January at 10,868). As with SP500, still well positioned to make a breakout.
Stats: -18.03 points (-0.17%) to close at 10811.97
Volume: 236 million shares Wednesday versus 247 million shares Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
Wednesday was not the rubber match as the market ended basically where it started. It tried the move but was not ready yet. So SP500 is still on the cusp of a break higher, looking for a catalyst. Thursday is not bereft of news with the Q4 productivity revision, initial jobless claims, and ISM services, but Friday's job report will get more of the focus. With that, we could easily see SP500 post another lateral or slightly lower move ahead of that number. That would give it another consolidation day in its base and better set up a breakout attempt.
Time to remain patient and let the market complete the set up and see if it delivers the breakout. It remains to improve its posture but it has yet to show the big follow through move to the upside that swings the character away from those distribution sessions. It remains a show me market even as many stocks continue to hold up and make breaks higher. We will continue to participate in good moves but we have to be on the defense until we see that character shift evidenced by a strong upside break.
Support and Resistance
NASDAQ: Closed at 2067.50
Resistance:
The 50 day EMA at 2070
The 50 day SMA at 2086
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:
2066 to 2070, the bottom of the January lateral move.
2050-54, prior resistance and the June high is stronger
2047, the June high is minor support.
2023, an early October 2004 peak.
2000
The 200 day SMA at 1986
S&P 500: Closed at 1210.08
Resistance:
Q1 1999 lows at 1215
December high at 1218.
October 1999 low at 1233
Q2 2001 peak at 1310.
Support:
1200.
1196, the mid-January high and the early December peak in the left shoulder.
The 50 day SMA at 1194
The 50 day EMA at 1191 is potential support.
1185, the top of the November consolidation range.
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 1143
Dow: Closed at 10,811.97
Resistance:
10,868 from the December 2004 high.
10,975 - 11,000 from Q4 2000, Q1 2001
11,350 from the May 2001 highs
Support:
The 10 day EMA at 10,772
10,754 is the February high
The 50 day SMA at 10,666
The 50 day EMA at 10,649
Price consolidation at 10,600 level is a key level.
The late April, June peaks at 10,478 to 10,512
10,400, the bottom of the November/December range
10342 the early September peak.
The 200 day SMA at 10,329
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
February 28
Personal Income, January (08:30): -2.3% actual versus -2.6% expected and 3.7% prior
Personal Spending, January (08:30): 0.0% actual versus 0.1% expected and 0.8% prior
Chicago PMI, February (10:00): 62.7 actual versus 60.5 expected and 62.4 prior
New Home Sales, January (10:00): 1106K actual versus 1125K expected and 1218K prior (revised from 1098K)
March 01
Auto Sales, February: 5.5M expected and 5.4M prior
Truck Sales, February: 7.9M expected and 7.6M prior
Construction Spending, January (10:00): 0.7% actual versus 0.4% expected and 1.2% prior (revised from 1.1%)
ISM Index, February (10:00): 55.3 actual versus 57.0 expected and 56.4 prior
March 03
Productivity-Rev., Q4 (08:30): 1.5% expected and 0.8% prior
Initial Jobless Claims, 02/26 (08:30): 310K expected, 312K prior
ISM Services, February (10:00): 60.0 expected and 59.2 prior
March 04
Non-farm Payrolls, February (08:30): 225K expected and 146K prior
Unemployment Rate, February (08:30): 5.2% expected and 5.2% prior
Hourly Earnings, February (08:30): 0.2% expected and 0.2% prior
Average Workweek, February (08:30): 33.8 expected and 33.7 prior
Michigan Sentiment-Rev., February (09:45): 94.3 expected and 94.2 prior
Factory Orders, January (10:00): 0.0% expected and 0.3% prior
End part 1 of 3
|
