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money investment, financial investment
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3/08/05 Technical Traders Report Update
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Technical Traders Report Subscribers:
Next full report issues Wednesday.
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: None issued
Trailing stops: AAPL
Stop alerts: 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:
- Stocks sell back across the market, testing the recent moves.
- Bernanke explains Fed's measured pace.
- Point losses were more than we wanted but the overall action remains constructive.
- Oil inventories released Wednesday amid continued strong oil and gasoline prices.
Good moves lead to the inevitable pullback.
We expected stocks to test the recent moves, and in this market of one and one-half steps forward, 1 step back, no upside move goes untested for long. Monday the NYSE stocks were ready to peak but NASDAQ's break higher kept them on the positive side. After TXN lowered its earnings and revenues outlook Monday afternoon, however, NASDAQ was not the same index it was the day before. Without any other external positives the NYSE stocks fell back into their test of the recent breakouts by SP500, SP600, DJ30 and SP400.
The financial stations were bemoaning the lack of follow through on NASDAQ, and with no indices able to hold positive the tone was generally glum. The overall action, however, was not that negative and was actually constructive. It was a day to be patient, let the indices make their tests and prepare for the next move.
NASDAQ may not have shown any follow through, but it was not time for it to. It is still working on its base, and while Monday was a good volume bounce up to finish the second leg of its potential double bottom base, it was not the breakout move. Instead it sold back Tuesday on very low volume. It gave up the 50 day SMA, but it did hold the 50 day EMA. That low volume indicates the selling was not very intense at all, even with TXN's disappointing earnings update. NASDAQ looks to be setting up to form the handle to its 10 week base, and that would be very good action indeed.
Much of the blame fell on TXN and thus the SOX index through negative association. Scanning the chip market, however, there were no major implosions. Indeed, SOX lost 1.4% on the session and was the downside leader Tuesday, but it merely came back toward the 18 day EMA, easily holding above that level.
NYSE volume was higher as the large, mid-, and small caps all sold back following their breakouts last week. Volume was not heavy, however, moving above average but well below last week's levels. Slight distribution (higher volume selling), but those indices remain in very good shape after their breakouts. We expected some testing and would have preferred seeing volume fall even further below Monday's light levels, but with trade tracking well below last week's upside volume we are not reading this as a return to sellers dominating the action. It will most likely test some more, and as long as the volume remains under control it is constructive action. Remember, it was not too long ago that stocks would get sold off hard every time they tried a breakout from any range. The market is not in a massive upside surge even with the improved action, but it is holding onto its breakout for now.
THE ECONOMY
It was another slow day as far as scheduled economic releases. So slow there were none. Oil was an issue once more as it approached $55/bbl. The Fed was back on the stump again, with one of its more respected members speaking to an executive luncheon in Chicago.
Mr. Bernanke discussed the general health of the economy and gave it thumbs up, noting that the recovery and expansion was sustainable with business investment holding strong despite the expiration of some of the capital investment incentives at the end of 2004. He also noted that core inflation for 2004 was relatively low (PCE 1.6%) despite the strong increases in energy costs. Indeed, he even postulated that if energy prices remain at the current level, inflation will not substantially increase in 2005 (he expects 3.75+% GDP, 1.5% to 2% PCE), noting that steady prices do not equal rising prices.
Common sense stuff. Of course, high energy prices may not promote inflation, but they do take their toll on the economy. Basically Bernanke was showing some common sense that often seems lacking in what the Fed says. Bernanke was implying that just because energy prices are high, it does not follow that inflation will be higher. Indeed, he discussed the how the Fed had to be vigilant with respect to its monetary policy to match the economic conditions. Higher oil prices are a tax and can lead to slower economic activity and thus a lower inflation rate as opposed to higher. We have always said that raising interest rates won't make OPEC produce more oil at a cheaper price. Real world demand and conditions are the key, and Bernanke was speaking plainly about this.
Much was made about Bernanke's statement that the Fed's 'measured pace' language was a policy forecast and not a commitment to raise rates slowly. Some took it as another warning that the Fed may be ready to raise rates at a faster pace. When we first heard the comments that was our reaction, but when we read the text it was very innocuous. Indeed, Bernanke stated his belief that the 'measured pace' had worked (i.e. inflation had not gotten out of hand) and that there was no need to change the measured pace given what the economy was showing. Of course he bracketed his statements with about every caveat you could; he even suggested that the measured pace would be halted in the event of a 'shock.' Again, this is common sense, but many commentators lose sight of common sense in the fishbowl of daily data. The central idea for Bernanke is that the Fed was hiking rates, it was doing it modestly, it was working, and it would do it until it hit neutral.
He could not say what neutral was, but he did say the fact that short term rates have recently declined 'fairly significantly' suggests the market views the neutral funds rate as lower today than it was in the past. This is refreshing discourse, but one wonders just whether the overall Fed share's Bernanke's moderation. Even if it does, the Fed has historically shown its inability to maintain that moderation in the heat of battle.
THE MARKET
NASDAQ gave back more than we wanted, cutting back through the 50 day SMA and taking back all but 3 points of Monday's gain. You never like to see large point losses on a test, but it did hold the 50 day EMA and volume was very low. Given it is still in its base it was not as if the index imploded or gave back a breakout. Not great action, but far from deadly. In this market if stocks are not sharply reversing on the heels of an upside move you are ahead of the game.
With that in mind, the NYSE breakouts are still intact even with some slightly higher volume Tuesday. Of course, volume was pretty low Monday on NYSE, so the modest increase in trade was not that dramatic. It was not a clean, textbook base and breakout, but it was a breakout with NASDAQ working on its base below. Money showed the ability to rotate Monday, a new and positive addition to the market.
Three was some trouble in some of the leading groups once more on Tuesday as steel and homebuilders suffered some higher volume selling. Most managed to hold at near support at the close. Big leaders can suffer some sharp distribution on their runs, but as long as they maintain their support and their trends they tend to hold their leadership positions. We will be watching them closely ahead as we also watch the market continues this test of the recent moves.
Market Sentiment
VIX: 12.4; +0.14
VXN: 17.86; +0.13
VXO: 11.95; +0.31
Put/Call Ratio (CBOE): 0.87; +0.10. Good rise in the ratio as stocks showed a bit of weakness. That shows a continued skepticism about this move, and in the world of sentiment that is a positive for the move.
NASDAQ
NASDAQ struggled but it did try to make a recovery early. That failed rather quickly and it gave back most of the Monday gain. Extremely low volume, however, a good sign as it continues its base.
Stats: -16.66 points (-0.8%) to close at 2073.55
Volume: 1.744B (-11.64%). A significant drop in volume as NASDAQ struggled on the heels of TXN's reduced earnings outlook. Up on the solid Monday gain, lower on the Tuesday loss. That is the kind of price/volume action you want to see in a base.
Up Volume: 434M (-1.059B)
Down Volume: 1.295B (+848M)
A/D and Hi/Lo: Decliners led 1.88 to 1. More than we wanted to see, but the overall NASDAQ fared better than the large cap techs, the opposite of Monday.
Previous Session: Decliners led 1.04 to 1
New Highs: 98 (-73)
New Lows: 59 (+12)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ gave back most of Monday's gain as volume faded to very low levels. It gave back the 50 day SMA (2079) but held the 50 day EMA (2070). It is moving just below 2103 that marks the 'hump' in the potential double bottom pattern. If it continues this lateral move near the 50 day EMA on this low volume, it will be forming a good handle to its base. That continues the improved action in the index. It is lagging, but we don't view the action Tuesday as some failure to confirm the Monday higher volume break higher. NASDAQ is basing, setting up the bigger breakout. Monday was not it. It may take several sessions to complete this base, and as long as the price/volume action remains positive as it has of late it will be building a better move.
NASDAQ 100 lagged the overall NASDAQ (-1.1% versus -0.85), the flip of Monday. The large cap techs are definitely calling the shots on the index. It gave up both the 50 day SMA and EMA but it holds the same pattern as overall NASDAQ.
SOX led the downside with its 1.4% loss, but it did not do any major damage despite TXN lowering its earnings outlook. It remains in the 4 month reverse head and shoulders base, basically ignoring what TXN had to say; given its warning dealt with DLP elements for televisions, this is not surprising. Still in good shape for a breakout attempt over 450.
SP500/NYSE
The large caps sold back Tuesday, something they likely would have done Monday but for NASDAQ's strength buoying much of the market.
Stats: -5.88 points (-0.48%) to close at 1219.43
NYSE Volume: 1.523B (+2.3%). Volume edged higher, moving a bit above average as the large caps sold back from the breakout last week. Never like to see volume jump on a turn back from a breakout, but it was not a high volume reversal. As long as volume remains under control on the further test that indicates there isn't any dumping of those shares that were just purchased.
Up Volume: 445M (-437M)
Down Volume: 1.048B (+464M)
A/D and Hi/Lo: Decliners led 1.83 to 1. With the small and mid-caps losing 0.9% and 0.8% respectively, breadth was going to be weaker.
Previous Session: Advancers led 1.16 to 1
New Highs: 201 (-164)
New Lows: 18 (+4)
The Chart: http://www.investmenthouse.com/cd/^spx.html
The large caps were under pressure as well as all areas of the market sold back. After two weeks of upside culminating in the Friday breakout, we have been expecting this pullback to test the move. For now it is still over 1218, the post-crash high, but it will likely test back further. Holding the 10 day EMA (1212.74) would be optimal.
SP600 struggled all session, only topped by NASDAQ 100 and SOX on the downside. Pretty big loss for the small caps (-0.9%), but the breakout remains intact and it is still above the 10 day EMA (332). Really need to see this leader hold near the 10 day to show more strength. It could test the 18 day EMA (330) but that makes the breakout questionable.
DJ30
Modest dip by the blue chips on very low, below average volume. The breakout was on low volume but at least the test is on even lower volume. There may be no power in the move, but at least it is showing the right kind of price/volume action. It is easily holding the breakout for now, well above its 10 day EMA (10,848) and still holding over the post-crash high (10,868).
Stats: -24.24 points (-0.22%) to close at 10912.62
Volume: 205 million shares Tuesday versus 229 million shares Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
The only scheduled economic data of note is the 10:30ET release of oil inventories. With oil approaching $55/bbl Tuesday, it remains a focal point for the economy. It may not rise much more as Mr. Bernanke opined, but at more than $50/bbl, oil remains a drain on the economy. Indeed gasoline prices have shot higher the past week and will go even higher we hear, long before any real driving demand has been placed upon them and even though inventories are high compared to the past several years.
Every day the market has an off session the continually high oil prices get the blame. In reality, if oil prices were a real problem for the market right now the NYSE indices would not have broken out last week. Oil has not moved out of the $50 - $55/bbl range but those indices moved to new post-crash highs nonetheless. We still expect high oil to have an impact at some point but for now the market is pushing that impact well out into the future, at least far enough out that the current market action is not fully pricing it in.
That could always change if oil spikes past $55/bbl toward $60, but of course, there are any number of things that can shock the market. For now there was a break higher last week on better volume that acted as a modest follow through session. That move is now being tested. In addition, NASDAQ continues its base, setting up for a breakout attempt of its own down the road. Price/volume action remains decent, and that shows no unloading of stocks right now. Money actually moved around the market Monday in a sign of some improved health. The market is by no means roaring like a lion; it is moving higher but more like with the guile and tenacity of a jackal. It short it is not pretty but for the time being it is working.
We will continue to look for the pullback to test the recent moves and we want volume to stay low. Of course the indices also need to make a reasonable showing of holding the breakout move as well. That may take another session or two before stocks are ready to move back up. That should get enough anxiety about the breakout engendered to give the move new legs. For now we have to be patient and let the market as well as the leaders make their pullback and set up the next move higher.
Support and Resistance
NASDAQ: Closed at 2073.55
Resistance:
The 50 day SMA at 2079
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:
The 50 day EMA at 2070
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 1990
S&P 500: Closed at 1219.43
Resistance:
October 1999 low at 1233
May 2001 interim peak at 1266.
Q2 2001 peak at 1310.
Support:
December high at 1218.
Q1 1999 lows at 1215
The 10 day EMA at 1213
1196, the mid-January high and the early December peak in the left shoulder.
The 50 day SMA at 1195
1185, the top of the November consolidation range.
1175 second high in that double top that spanned late 2001.
Dow: Closed at 10,912.62
Resistance:
10,975 - 11,000 from Q4 2000, Q1 2001
11,350 from the May 2001 highs
Support:
10,868 from the December 2004 high.
The 10 day EMA at 10,848
10,754 is the February high
The 50 day EMA at 10,687
The 50 day SMA at 10,677
Price consolidation at 10,600 level is a key level.
10,400, the bottom of the November/December range
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
March 07
Consumer Credit, January (3:00): $11.5B actual versus $5.2B expected and $8.7B prior (revised from $3.1B)
March 10
Initial Jobless Claims, 03/05 (08:30): 310K expected and 310K prior
Wholesale Inventories, January (10:00): 0.6% expected and 0.4% prior
Treasury Budget, February (2:00): -$98.5B expected and -$96.7B prior
March 11
Trade Balance, January (08:30): -$56.8B expected and -$56.4 prior
End part 1 of 2
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money investment
financial investment
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