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3/03/05 Technical Traders Report Update
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts issued: TSO; IVAN
Trailing stops issued: CVC; MTEX
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:
- Early rally fails but stocks fight back for flat close.
- ISM Services expands but slower than expected.
- Retail same store sales strong across the board.
- Poised to move or precarious perch: Stocks remain just below former highs ahead of jobs report.
- Jobless claims remain low but expectations for jobs do as well. Time for an upside surprise?
Stocks cannot hold early rally ahead of jobs report.
Futures were up on some takeover rumors in the oil patch (CVX and UCL) and some very solid same store retail sales. When the market opened, however, the only stocks that were up were the oil stocks and the retail stocks. Chips were under pressure from a downgrade (for the week that put the score of upgrades to downgrades for the group about even), and they led the move lower. Without their support, NASDAQ struggled as well.
The selling got a bit of a boost on a weaker than expected ISM services report on the heels of another strong weekly jobless claims report. What really got the sellers excited was an OPEC minister's comment that if there was some supply issue prices could spike to $80/bbl. That added to some froth and helped spike gasoline futures higher as well. You always have to be wary of such statements because the question is usually what triggers the response and then the response is taken out of context and next thing you know the market is all worked up. Oil ran to $55/bbl before backing off some on the close. Demand plus a bit of fear equals a notable spike in energy prices and puts us at risk for another high-priced driving season.
Stocks did manage a comeback. An afternoon rebound took hold when SP500 once again held the 10 day EMA at 1204. No major surge, but enough to turn the NYSE indices positive and slice 11 points off NASDAQ's losses. NYSE volume edged higher as SP500, DJ30, and SP600 posted modest gains. NASDAQ volume edged lower as techs and chips closed lower. That is the right price/volume action, but all that tells us is that there was no change in the current market character. Breadth was flat as well.
In short, the action matched the finish as the indices basically held their position ahead of the jobs report. They are set up to make a breakout, but we also recognize that the recent action has not washed away the distribution sessions. Any bad news could send them lower, and it is not at all clear what the market would perceive as bad news. A strong jobs report could raise fears of faster and bigger rate hikes, something the market fears along with high oil prices. That one-two punch is still working on the market, going to the body so to speak as would a boxer. It does not knock a fighter out but it slowly takes the legs out from under him.
THE ECONOMY
ISM services index rises less than expected but shows bright spots.
This is the newer of the business sentiment surveys and it was the leader all through the recession and recovery. It has cooled the past few months but it easily remains in expansion territory, i.e. above 50. February posted a 59.8 reading up from the January 59.2 but missing expectations of an even 60. Pretty close even for horseshoes.
As with the manufacturing report, the news was pretty good across the board. New orders rose to 61.6 from 60.5. Prices paid fell to 66.4 from 66.6. Employment hit an all-time high at 59.6 (52.2 prior). Of course 'all-time high' is relative; the index only started in mid-1997. Still it was a good report showing continued optimism and plans for hiring, buying, producing, etc. Just the kind of thing you would expect to see in an economy expanding at a near 4% clip.
Productivity revised sharply higher.
First reported at 0.8% and giving inflation hawks something to squawk about. Lower productivity means less ability to offset rising materials costs. The big jump back to 2.1%, easily topping expectations of 1.5%, took a lot of the pressure off inflation fears. In addition, unit labor costs fell to 1.3% from 2.3% originally reported. We don't necessarily buy the argument that wages lead to inflation, but the Fed plays that game. Thus it was a positive to see them fall as well. In short, productivity's jump took some of the heat off of inflation fears.
February same store sales hot.
One of the characteristics of the retail market the past few years has been the scattered results in the retail sector as the economy shifted to discounters during the recession and then back to high end during the recovery. The department stores pretty much lagged the entire time.
Things have finally shifted and the gains were solid across the board. Teen stores remained super strong, luxury was solid, discounters saw big gains, and department stores finally saw some solid results as well. Despite some very tough February 2004 comparisons, 85% of the retailers tracked beat expectations. WMT sales topped expectations, coming in at 4.1%. WMT has lagged as consumers stayed away as the economy recovered.
Examples: AEOS 32%, ANF 19%, JWN 7%, COST 7%, NMGA 7.7%, KSS 6%, TGT 9%, PSUN 10.5%
The broad list of improved sales shows less selective buying and more buying to fill current needs. While that gets some worried about lack of savings, we have to remember that we are not the real source of lack of savings. The government overspends its tax receipts and foreign economies simply are not strong enough to buy many of our goods. In short, the US consumer, already strong, is getting stronger.
THE MARKET
Once more SP500 and DJ30 flirted with breaking the post-crash highs, but once more they could not close the deal. And once more NASDAQ tried to break through the 50 day EMA, and once more it could not post escrow either. Pretty much no change as volume was lower on NASDAQ and slightly higher on NYSE and breadth was modest again. In short, status quo.
That keeps SP500 and DJ30 right below the post-crash highs, moving laterally over the 10 day EMA. Moving laterally, poised for the breakout. With the prior distribution and no follow through or actual breakout, however, it is just another pretty pattern. Nice patterns come, nice patterns go. Some break out, some don't. It has been banging against the resistance, trying to crack the ice and have the buyers take over from the sellers. At this juncture they have not done so. The market has shown resilience in the face of spiking oil prices, but it has to turn that resilience into the follow through. It thus remains poised but the move could be either way depending upon the catalyst. Looks promising but needs a jobs report that is solid but not blowout.
Market Sentiment
Bulls versus bears: Bullish advisors nudged higher to 54.7%, just below the bearish 55% level. Bears climbed as well, however, moving up to 22.1%. That keeps it above the 20% bearish level. Overall, there are still a lot more bulls than bears and they have not come close to merging since late August 2004. With the market just below the prior highs and some distribution still working, this is another caution flag.
VIX: 12.93; +0.43
VXN: 18.76; +0.56
VXO: 12.56; -0.03
Put/Call Ratio (CBOE): 0.82; +0.01
NASDAQ
Gapped above the 50 day EMA, gave it up, but held near support. Just didn't know what it wanted to do ahead of the jobs report.
Stats: -9.1 points (-0.44%) to close at 2058.4
Volume: 1.923B (-5.23%). Declining volume on the loss was a silver lining on the day as NASDAQ showed no distribution and moved laterally once more within its base.
Up Volume: 638M (-150M)
Down Volume: 1.25B (+31M)
A/D and Hi/Lo: Decliners led 1.13 to 1. Very modest downside breadth once more.
Previous Session: Decliners led 1.29 to 1
New Highs: 100 (-8)
New Lows: 49 (+3)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ continues to work on its base, struggling at the 50 day EMA (2069) and unable to break through. Volume was lower and thus no dumping of tech shares; just the continued overall weakness in tech stocks as they work on their 9 week base. Trying to set up that double bottom but showing no inclination to move over the 'hump' at 2100 yet.
NASDAQ 100 struggled at the 50 day EMA as well, but it did not even make it over that level. The large cap techs struggled, down 0.9% versus the 0.4% for the overall NASDAQ.
SOX was under pressure as it received some more downgrade news as the analysts continued their one-up game. It tapped the 18 day EMA on the low (430.59) and then rebounded to cut its losses. If it holds here it will have made a higher low further set up a continued move higher off the 200 day SMA.
SP500/NYSE
The large caps moved laterally once more as volume turned higher once more. It is poised to move but needs the right catalyst.
Stats: +0.39 points (+0.03%) to close at 1210.47
NYSE Volume: 1.615B (+3.05%). Volume remained above average and was higher, but the move was modest. No real accumulation, just holding up at resistance.
Up Volume: 772M (+26M)
Down Volume: 822M (+45M)
A/D and Hi/Lo: Advancers led 1.14 to 1. As with NASDAQ, very modest as it tries to put together a handle prior to a breakout attempt.
Previous Session: Decliners led 1.16 to 1
New Highs: 198 (+20)
New Lows: 23 (+3)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Tapped at 1215, just below post-crash high at 1117.90. Another lateral move at resistance in its 9 week base. It is put up or shut up time for SP500. A nice 9 week lateral move that has used the 50 day EMA (1192) as support, but as we noted above, until is shows us the breakout move it is just another pretty face.
Similar action in the small caps, showing another doji over the 10 day EMA (329.55) after the move to a new high Tuesday. They are providing leadership but have made no breakaway move to drag SP500 with it.
DJ30
Once more DJ30 moved to a new post-crash high intraday (10,869; prior high 10,868), and once more it could not hold that move on the close. Lower volume again and that pretty much short circuited the breakout attempt. Still a nice 10 week base. Still has to show the volume move.
Stats: +21.06 points (+0.19%) to close at 10833.03
Volume: 233 million shares Thursday versus 236 million shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Jobs are again the highlight, but as we have seen already, the more leading indicators still look quite solid. Jobs are a lagging indicator, almost an afterthought. What they do show, however, is whether an expansion is becoming entrenched. In this recovery traditional jobs have lagged. Eventually they will need to form as the new companies that were created grow and hire more and more. This economy has created traditional jobs, but by the measure of most traditional recoveries, a fairly low amount. You always want to see a recovery move deeper and wider, and rising non-farm payrolls is such an indication.
The weekly jobless claims came in at 310K, another very low, healthy level. Monster Jobs also showed very good postings. Of course it showed strong postings last month and the jobs report was another modest one. Indeed, it looks as if the string of so-so reports has ratcheted expectations down sufficiently where there will be complete surprise when a big month surfaces. That could happen Friday.
Problem is, we are not sure the market will like a strong jobs report. The Fed views jobs as good but with limitations. It is already hiking rates and talking about having to speed things up. It is looking for excuses to do so now that it has been laying the groundwork for that occurrence. If there is a 300K or more report, that could spark more inflation fears along with rising oil prices. Instead of breaking the market higher it could invite some sellers in.
Thus an inline report (225K) or less would likely be better for the market than a blowout report. The market has gone beyond looking for signs of recovery as it was back in 2004 to looking for signs the Fed won't jack rates up faster.
This is a critical point for the market where the buyers will either step up or just continue their lackluster performance. Pretty patterns on SP500 and DJ30 and still plenty of leaders holding up and looking for a break higher themselves. They need to do that or the door is open for the sellers as the indices are poised at the prior highs. Again, the market has yet to show a change of character from that prior distribution. It is working on it with this return to the highs and lateral move, but that is just prep work. The move has to materialize and there are still plenty of headwinds down the road from rates, oil, and money supply (don't forget the Fed has been lower the supply of late). Until it shows the move we stay on the defensive.
Support and Resistance
NASDAQ: Closed at 2058.40
Resistance:
The 50 day EMA at 2070
The 50 day SMA at 2084
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 1987
S&P 500: Closed at 1210.47
Resistance:
Q1 1999 lows at 1215
December high at 1218.
October 1999 low at 1233
Q2 2001 peak at 1310.
Support:
The 18 day EMA at 1201 and price support at 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 1192 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 1144
Dow: Closed at 10,833.03
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 10,783
10,754 is the February high
The 50 day SMA at 10,669
The 50 day EMA at 10,656
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 10,334
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): 2.1% actual versus 1.5% expected and 0.8% prior
Initial Jobless Claims, 02/26 (08:30): 310K actual versus 310K expected and 311K prior (revised from 312K)
ISM Services, February (10:00): 59.8 actual versus 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 2
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