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world stock market, us stock market
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10/08/01 Technical Traders Report
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SUMMARY:
- Uncertainty hems in the market, but if this is consolidation, we like it.
- Stocks and indexes behaving as we would want them to for now.
- Subscriber Questions
Volatile session on war news.
The market can take pretty much anything that does not create major uncertainty. With the attack over the weekend and today, there is plenty of uncertainty right now. Uncertainty as to how effective the initial sorties have been, uncertainty as to just what is going on in Afghanistan and elsewhere, uncertainty as to the terrorists' next move, uncertainty about what the anthrax death in Florida and the subsequent case of the disease means. Plenty to worry about.
Nonetheless, given the conditions, the market performed admirably. All indexes sold down initially, but they held well above recent near-term lows. They rebounded to positive territory only to fade and then rally somewhat toward the close. Again not bad action because the indexes rose well last week off of the lows and are at a logical point to consolidate or pull back before trying to move higher. The fact that they are not tanking even though they are at a point where they should at least take some rest and the uncertainty level is high is a good sign. It appears more like a normal consolidation thus far even though things are far from normal right now.
What are stocks doing?
Stocks are doing what we anticipated: they have broken out and have made good moves, and are now pulling back to test those moves, doing so on low volume. Meanwhile the next group of potential breakouts are forming handles and otherwise completing their patterns. The market action is just the right type to allow this to occur: a rally higher off of the lows broke out those that had formed good patterns, while others worked on their patterns. Now a low volume consolidation is helping get things ready for the next move higher.
We see many pattern sin good, low volume pullbacks and others working through handles and the like, waiting for the next break higher. Thus far the accumulation phase is still ongoing, setting up for the next move higher. There is always the potential of negative news hitting, but the market has done well with negative economic news; the wildcard remains the war.
Stimulus still on track, but there is going to be a fight.
Everyone agrees stimulus is needed, but now it is clear that the views of what it should be are widely divergent. Today several congressional leaders visited the NYSE, and they would not give any specifics other than the Congress was going to take it up on the floor 'later this week or next week.' Keep the pressure on your representatives. Don't let them waffle. Let them know what you think regardless of what side you take: that is the way we do it in the U.S., and we are the envy of the world because of it.
THE MARKET
If this is the consolidation we are going to get, we can live with it. Even though the market was quite volatile, if we are patient and catch the breakouts on good volume, we will catch the waves as they head out.
Volume was light: Columbus Day and the counterattacks. That will change as the week progresses: the earnings parade is starting now. FDC beat the street by 3 cents after the close, and it rallied well up off the session lows. We don't expect much in the form of guidance from many, though it will be interesting to see what companies such as RFMD that affirmed the year earnings earlier in the year report. Again, however, the ultimate driver will be the recovery anticipated as a result of the rate cuts, monetary input, and fiscal stimulus. The market knows earnings are going to stink and it has started to show solid buying; it may sell a bit with the first negative earnings wave, but we feel it will recover from that all things equal.
VIX: 35.91; +1.25. Volatility moved solidly higher on the up and down selling in the S&P 100.
VXN: 66.13; +2.78. Very low most of the session, and then shot higher at 1:30 p.m. ET as the Nasdaq started its 25-point afternoon selloff. This is a classic sing of news hitting the market and raising volatility without the indexes showing massive spikes either way. That pumps up option prices as their volatility is ruled by price movement and news.
Put/Call Ratio (CBOE): 0.80; -0.16. Lower, but still at the high end of the range. We like to see this action.
Nasdaq
Stats: +0.65 points (+0.04%) to close at 1605.95.
Volume: 1.416 billion shares (-22.8%). Very light, below average volume on the session that produced a slight gain but was much higher and much lower intraday. All in all, the volume on the indecisive price action is good. Up volume led 836 million to 565 million shares.
A/D and Hi/Lo: Declining issues still led Monday at 1.3 to 1 (1.19 to 1 Friday). New highs rose to 52 (+12), and new lows fell to 95 (-20). Better action on the lows.
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq continued to move more or less sideways for the third session as volume declines. That is pretty much just what you want to see. Friday it held above 1500 (1548.81 on the low) and recovered, and today it touched 1574.65 (basically on the open) and recovered from there. Again, if this is the type of consolidation we are going to get before the next move higher, we can definitely deal with that. While not the same as the small ascending wedge the Nasdaq formed right off of the low, this is another type of positive pattern after a good move higher that often leads to further upside.
Dow/NYSE
Started lower, rallied slightly positive, and then gave back some ground. As with the Nasdaq, NYSE volume was very low. Very similar action, very good action for a consolidation.
Stats: -51.83 points (-0.6%) to close at 9067.94.
NYSE Volume: 979 million shares (-26.3%). Volume fell well below average on the holiday session, and given the giveback of Friday's gain, that is what we would want to see. Healthier markets rise on stronger volume and fall on lighter volume. Thus far the Dow is behaving properly after the move up off of the bottom. Down volume led 615 million to 354 million upside shares.
A/D and Hi/Lo: Decliners took over today at 1.61 to 1 (advancers led 1.02 to 1 Friday). New highs rose to 61 (+15) as new lows fell to 49 (-13). That is good news on the new lows front.
The Chart: http://www.investmenthouse.com/cd/$indu.html
The chart is similar to the Nasdaq chart, and we like it. What we are seeing is a strong move up off of the low and now a consolidation with a flat top (the intraday high last Thursday at 9187 with most intraday highs around 9145) that keeps testing the 10 day MVA on the low (today at8983.16; intraday low today at 9012.30). This is similar to an ascending wedge as the pressure builds up from below as the top remains flat. Again, this is a positive consolidation as stocks continue to form up their bases and test the recent moves higher.
S&P 500: The big caps had the worst day of the group, but it too held where it should have held. Indeed, it was the only one of the three major indexes that came close to the first support level. On the low the S&P taped 1056.88, above the 1050 level we were looking at as near term support. That level is also above the 10 day MVA at 1053.15 as the S&P also continues to ride above that level as it moves to consolidate the gains off of the September low. Other than last Thursday's intraday spike to 1084.12, the top of the consolidation has been flat and steady at 1070 to 1075. This is a very solid consolidation pattern and indicates that there is little selling volume.
Stats: -8.94 points (-0.8%) to close at 1062.44.
Volume: NYSE volume dropped sharply on the selling to 979 million shares (-26.3%), just the type of action we like to see on selling.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
No major economic reports tomorrow, but big news after the close. MCHP, in the semiconductor sector said that its inventory correction was "substantially complete." The stock was up over $1.50 after hours. Indeed earnings and earnings news will continue to ramp up in numbers as the actual announcements start hitting the wire. As noted, FDC, a financial ATM processing company beat the street by 3 cents. Then Borland Software (BORL) said its number will come in 1 to 2 cents light. FDC made a nice recovery from the session lows while BORL was down slightly.
That is the kind of news (and worse) we can expect: while some is more of the same, we will see more and more MCHP-like news. RFMD did it earlier, and there will be more. There will also be really cruddy earnings and outlooks ahead. The thing about this market of late, however, is that it has been able to absorb this bad news. It has been bad for so long with no visibility regarding the future, that it was truly getting sold out and able to look past the negatives. It was also adjusting to the continued lack of guidance. Why? Because of all of the positives for the market over the past several months: rate cuts getting the fed funds rate close to where it needs to be, and now talk of more stimulus in the form of tax cuts and tax incentives. There is more to it as we have discussed the past several weeks, but basically that is what is going on: better times priced into the market because of the actions being taken.
Thus, with respect to the future, barring another major event, we anticipate more of a move higher after this consolidation is done. When will that be? Hard to say, but looking at the index patterns, it could be 2 to 3 more sessions. What we do is just wait for the stocks we are tracking to make the moves we are looking for on strong volume. That is the surest sign that the next move is on the way.
We will also be looking at the indexes themselves for plays. We don't like the downside right now as we feel the patterns developing are not conducive to bigger moves down, and other than a day trade to support, we would not want to get caught. That is always subject to bad war news or terror news (and you just cannot predict that), but looking at the charts as discussed above, they look bullish. Indeed, those patterns give us good, defined entry points on the moves higher. Those plays can enhance our longer term investments and give us some solid, quick cash.
With the MCHP news, we may see some upside pressure in the morning. We won't necessarily be biting on that, but we will wait and take a look to see if it has any staying power. Remember, this consolidation looked as if it has another 2 days or so ahead of it before it started higher. Good news can jump start that, so we will watch, see the first move and the pullback. We will look to see where that holds. If the gap is above resistance levels, holding at those points on a test is very bullish. Otherwise we will look at a hold above today's close, and then a move back up from there.
Support and Resistance
Nasdaq: Closed at 1605.95.
Resistance: The high in the current pattern is 1641.56 (intraday last Thursday). Still, 1619 and 1638 are the prior lows, and 1638 held last Thursday. Then there is the bottom of the gap down at 1670.
Support: Still looking at the 1550 level (10 day MVA at 1560.25). Then 1530, the intraday high of the little wedge it just broke out of may act as support. Again, that is where we would expect it to hold. Below that, 1459 has held on a closing basis. The lows of the 1998 bear market, 1419 closing and 1357 intraday.
S&P 500: Closed at 1062.44.
Resistance: The former lows are still the level to beat. Those are 1081 (intraday) and 1103.25 (closing). Then 1124 (prior consolidation level) and 1150 (also price consolidations).
Support: 1050 held Friday and today, but again it has not definitively cleared that level yet. The 10 day MVA is at 1053.15 and the 18 day MVA at 1058.71; those will help the 1050 level out. After that, again 1017 to 1020. 1000 acted as support as well on the prior test. After that, 960 (one of the lows in the 1998 double bottom). The other low in that pattern is 925.
Dow: Closed at 9067.94.
Resistance: As noted over the weekend, the Dow had not really cleared the March low at 9106, and today it did pull back below that level on the close. It still has to make a high-volume break over it. The intraday high in the current consolidation is 9187.37, but 9150 looks to be the primary level of resistance in the pattern. After that, 9389 is the prior closing low, and from there up to 9500 represents resistance.
Support: Dancing all around 9106, but closed below it today. It has recently been using the 10 day MVA (8983.16) as intraday support, bouncing up off of that level. We will see if that trend continues as the Dow builds more pressure toward a breakout. After that, 8900 and then 8700 is next where it held before.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
10-10-01
Wholesale Inventories, August (10:00): -0.3% expected and -0.7% prior.
10_11-01
Initial jobless claims (8:30): 505,000 versus 508,000
Export prices, September (8:30): -0.3% prior.
Import prices, September (8:30): -0.4% prior.
10-12-01
Producers Price Index, September (8:30): 0.0% expected versus +0.4% priorl
Core PPI (8:30): +0.1% expected versus -0.1% prior.
Retail sales, September (8:30): -0.7% expected versus +0.3% prior.
Retail sales, ex-auto (8:30): -0.5% expected versus +0.5% prior.
Michigan sentiment, October prelim (10:00): 75.7 expected versus 81.8 prior.
End Part 1 of 3
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