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world stock market, us stock market
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7/07/05 Technical Traders Report Update
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SUMMARY:
- Market gets a shock on London terror attack, shakes it off and closes positive.
- Same store sales post solid gain as retailers show solid June sales.
- Oil inventories tumble but oil fades anyway.
- Jobless claims hold at a low level, but not expecting much impact on Friday jobs report.
- Alcoa gets earnings off on a good foot after hours but will investors want to buy ahead of weekend with renewal of terror attacks?
Terror strike gives market another obstacle to overcome.
The UK was the next in line for the terrorists as they used London's celebration of the Olympic games as a chance to launch a series of cowardly attacks. The world markets dove on the news, but almost immediately started to recover. Stock futures pointed to a test of the 50 day EMA, and on the open the NASDAQ did just that while the undercut that support level. That was the extent of the selling, however. Stocks bounced back, waffled all morning, but then put in a slow, steady climb the rest of the day to close positive. If you heard nothing about the terror attacks and walked in during the afternoon you would assume just a normal trading day had transpired.
Of course it was hardly normal. A very negative catalyst pushed stocks lower, but they also showed some backbone with a steady though hardly solid rebound. Adversity struck and the markets managed to recover, showing some backbone after the recent distribution threatened to completely do away with the spring rally. If it was really weak it would have sold and not gotten up off the mat.
You might be inclined to think that the market reversed from selling after bad news on higher volume, thus making a key reversal move. We doubt that is what happened. It was not a real washout to the downside with a massive reversal. Futures had already recovered half of their losses or more at the bell. That blunted any potential panic selling that really acts to flush out the system. The volume on the rebound was solid, but it was not huge. It was good action in the consolidation, i.e. dipping lower and flushing out some more of the easy sellers and then rallying back on stronger volume to hold in the trading ranges. That is what we view it as: further consolidation action that is trying to set up the next run at resistance as it works to overcome its recent distribution.
That leaves us with a market that survived a scare and is now continuing the business of trying to recover from some distribution and continue its consolidation ahead of another run at resistance. It is by no means clear it is going to do that, i.e. finish the consolidation and make another run. The large caps have struggled of late and have suffered distribution; they still have to pull it together and support the small and mid-caps and their move higher. That is not a done deal by any stretch.
THE ECONOMY
Retail sales post solid gains.
Stores were reporting June sales Thursday, and they were strong as a whole. Indeed, retailers posted their largest gain in 13 months as a hot spell prompted purchases of summer clothing and air conditioners. Same store sales rose 5.3% with most beating estimates and JCP (7.4%) and TGT (+9%) raising their profit forecasts. After a cold weather spell in May, consumers were ready to buy in June despite higher oil prices. Some say more jobs and higher pay. Not sure that is the case, but it is certain that consumers are not yet bit by the oil Charlie Horse.
As usual the teen retailers posted monster numbers. ANF +38%. AEOS +28%. Luxury goods were strong as well: JWN (8.1%); NMGA (7.6%); SKS (6%).
Wednesday we reported WMT's sales jumped 4.5%, its best showing in over a year. Thursday we learned that other discounters did not fare as well. Far and away the discounters, even with WMT's rise, suffered the most. We still view this as WMT picking up some sales as consumers are turning to it more for staples and necessities given the sustained high gasoline prices, but they are not abandoning the higher end retailers they have enjoyed shopping at since the recession ended.
All in all this is pretty amazing news for the economy. Consumers are staring $2+ gasoline prices in the face and are still buying. It has been a scorching June so maybe they are just crazy from the heat, spending the family fortune away. That darn 'runaway' consumer Greenspan fretted over in 2000. Well that consumer is a big part of what keeps this economy going. Now we just need to be certain we keep the businesses spending and investing as well so supply will be able to match this strong demand and thus avoid inflation.
Oil inventories thud lower.
Oil inventories fell by 3.6M bbl last week, much more than the 1.6M bbl or so drop anticipated. Oil, however, was down over $3/bbl well before those numbers hit. The London bombing dropped oil sharply as fears renewed terror attacks would cause a global slowdown and thus less demand for oil. That all changed fairly quickly, however, as it became apparent there was no mass panic or extensive infrastructure damage. The human toll was awful but no real damage to the infrastructure.
By the time oil closed it had recovered sharply off of its lows, posting a $0.55 decline to $60.73. Hard to stomach a 0.9% decline that still leaves oil over $60/bbl. Amazing $4.90 intraday swing was the largest since the 1991 Gulf War.
While crude inventories fell, distillates rose 4.1M bbl, well above the 1.5M bbl anticipated. Gasoline inventories fell 975K even as demand surged to 9.7M bbl/day. The summer driving season is tremendously strong, and as we predicted a few months back, we are going to see $3/gallon gasoline prices as a national average by the end of summer. Be that as it may, the average price fell to $2.221/gallon nationwide.
Despite the gloomy news, prices were overdone near term. Prices had really surged the past week, hitting over $62/bbl as tropical storm Cindy moved through the Gulf of Mexico and hurricane Dennis moving in right behind it. The attack was enough to send the sellers in as it doesn't get any better than that from a negative perspective. Despite the selling oil is still over $60/bbl, and where it goes from here is hotly debated. We make this observation: starting in November 2004, every time it has looked as if oil is ready to tank it finds legs and continues higher. As long as demand remains high, prices are going to find support.
THE MARKET
MARKET SENTIMENT
Still remains remarkably complacent despite all of the events hitting it: terror, oil prices, the Fed.
VIX: 12.49; +0.22
VXN: 15.14; +0.37
VXO: 11.92; +0.21
Put/Call Ratio (CBOE): 1.06; -0.06. Another session close above 1.0 but lower than on Wednesday. Shows continuing fear but not a massive acceleration and one reason we did not view Thursday as a washout session.
Bulls versus Bears:
Bullishness is rising and bearishness if falling. Both ends of the spectrum have pushed to what are considered bearish levels. With the summer slog ahead and earnings, this is another weight upon the market and is taking on more importance as the market struggles with key resistance.
Last week: Bulls rose to 55.1% from 53.9% last week, the seventh consecutive weekly gain, up from 47.95% just a few weeks back. Bulls bottomed in early May at 43.5%.
Bears fell to 19.1%, below the 20% level considered the bright line for bearish implications. This follows a steady erosion of bearish views (20.2% from 20.3% from 20.9% from 25% from 26.1%).
NASDAQ
Stats: +7.01 points (+0.34%) to close at 2075.66
Volume: 1.627B (+1.44%). Volume moved higher but just barely and it did not crack above average. If NASDAQ had been a racer in the Tour de France its heartbeat would have hardly accelerated during the bombing aftermath. Nerves of steel and hidden strength or just catatonic? It is showing signs of both as it continues its consolidation.
Up Volume: 928M (+228M)
Down Volume: 641M (-203M)
A/D and Hi/Lo: Advancers led 1.03 to 1. From really nasty to positive. I laughed, I cried, then realized nothing happened this session. Then I really cried.
Previous Session: Decliners led 1.38 to 1
New Highs: 89 (-44)
New Lows: 30 (+2)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
Gapped down to the 50 day EMA (2048) just as the futures indicated and there it held once more. After some early hesitation NASDAQ rallied into the close to post a modest, slightly higher volume gain. It was a good test of character and as it turned out NASDAQ indeed has some. It held in the face of adversity, shook out some more sellers, and then rallied back to continue its consolidation. Volume was up but it was no indication of a major reversal, just a sell off that buyers used to pick up some shares. It did not change the character of the current 5 week lateral consolidation but it may have strengthened it some as it faced adversity, rallied back and worked to get past the recent distribution that has plagued it. In better shape than SP500, but it did not escape from the distribution and it has to show more of these upside higher volume sessions to show the accumulation is back on. It is right in the middle of the consolidation range still, and that keeps it working toward another showdown with 2100.
SOX tapped the 18 day EMA on the low and rallied back, continuing its three day move up off of the 50 day MA test from last week. You can call this a handle but the key move is still ahead with the test of resistance at 440. Good leadership today with a 0.4% gain, matching the mid-caps for the market lead.
SP500/NYSE
Stats: +2.93 points (+0.25%) to close at 1197.87
NYSE Volume: 1.516B (+6.83%). Volume rallied above average as the NYSE indices reversed off of their lows and posted gains on the session. This was much more like an important reversal than on NASDAQ with SP500 reaching way down and then racing back up on stronger, above average volume. Maybe enough to lead the market higher, but the large caps have been a big problem for the market with their distribution of late.
Up Volume: 970M (+371M)
Down Volume: 962M (-280M)
A/D and Hi/Lo: Advancers led 1.23 to 1. From -3.2:1 early in the session a much needed turnaround to close the day.
Previous Session: Decliners led 1.35 to 1
New Highs: 190 (-132)
New Lows: 43 (+15)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 blew through the 50 day SMA (1189) on the early selling, hitting 1183 on the low. That matched the November 2004 peaks and the late February 2005 low and was enough to send SP500 back up. A good reach lower and reversal for a gain that kept SP500 alive above its 50 day EMA (1193) to fight another day. Maybe this was the action that shook out the last large cap sellers and sets the stage for a recovery from the distribution. That is a lot to ask from this one session and with the recent distribution we don't expect that to be the case. It did shake out more sellers and puts it on some better footing to try and shake off that distribution and form up for another move higher.
The small and mid-caps led the market along with SOX Thursday, as both reached down and tapped the 18 day EMA on the lows and then rebounded to post gains. That is exactly the kind of action you expect to see from strong leaders: using the short term moving averages, particularly the 18 day EMA, as support for near term pullbacks. That stretched the rubber band and them sent them right back up on rising NYSE volume. Leaders are ready to lead again and the issues is whether SP500 is going to follow them higher.
DJ30
The large caps dove lower, falling through 10,250 down to 10,175 where it found purchase and rallied back. On the close it posted a gain and held that 10,250 support. Volume rallied above average on the reversal. Similar to SP500, the reversal and volume was much more akin to a reversal session: big reach down well below support and then an above average volume rebound to close positive. It needs it as it is still wallowing below the 200 day SMA (10,447).
Stats: +31.61 points (+0.31%) to close at 10302.29
Volume: 275 million shares Thursday versus 237 million shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
The market handled the terror attacks intraday and now we see if there is any desire to move into stocks ahead of the weekend with the though of attacks renewed. Friday is also the June jobs report and expectations are ratcheting higher ahead of the number as optimism (or maybe hope?) builds. Hope is a bad thing in the market. The layoff figures are not a positive, and the weekly jobless claims, while they have improved, have not held lower for a longer period of time once more.
After all of the gyrations Thursday and the jobs report before the open, the market will likely be in the same position it has been of late as it tries to consolidate and overcome that recent distribution. It is very likely that the Thursday terror event in UK is just another issue in the attempt to consolidate.
Earnings are going to be the driver ahead, and Alcoa beat expectations and enjoyed a nice pop after hours as it boosted gains due to an asset sale. That didn't seem to deter investors from buying the stock. Alcoa marks the start of the season but it really gets going next week with YHOO, JNPR, GE, etc. Alcoa was just a prelude and we doubt it is going to provide much upside impetus, at least ahead of the weekend with a terror attack fresh on investors' minds.
Again we like the look of the small and mid-cap indices as they tapped the 18 day EMA on the lows and rebounded for gains. Leadership material. While we doubt Friday will lead to any breakthrough moves from the large caps, we are going to look for leaders showing the same action as SP600 and SP400 as they tend to resume their moves ahead of the market. If we see some solid volume as they rebound then we can move into some positions.
Overall, however, we remain cautious given the recent distribution. Thursday may prove to be an important step in the consolidation, a good shakeout that helps set the move higher. As of right now, however, the market is still simply working on its consolidation, just where it was when it closed Wednesday. Friday its starts the job all over again and we will be watching for stocks that start to struggle and for those that held near support and are starting back up.
Support and Resistance
NASDAQ: Closed at 2075.66
Resistance:
2075 to 2078 may be giving way.
2100 is a key resistance point.
2151, the early December closing high.
2163, the mid-December closing high.
Support:
2051 from February, March price points.
The 50 day EMA at 2048
Early April high at 2021, February lows at 2023.
The April high at 2022 was the higher high point.
The 200 day SMA at 2035
S&P 500: Closed at 1197.87
Resistance:
The 10 day EMA at 1199.
1200 and price resistance
The February intraday high at 1212.
December high at 1217
The June high at 1220
The March 2003 up trendline at 1229
The March 2005 high at 1229.11
Support:
1196, the mid-January high and the early December peak in the left shoulder.
The April high at 1194
The 50 day EMA at 1193
The early May high at 1178
1175 second high in that double top that spanned late 2001 and early 2002
The 200 day SMA at 1176
Dow: Closed at 10,302.29
Resistance:
The 10 day EMA at 10,353.
10,400, the bottom of the November/December range
The May high at 10,406
The 18 day EMA at 10,394
The 200 day SMA at 10,447
The April high at 10,557
Price consolidation at 10,600
10,754 is the February high
10,868 is the December 2005 high.
10,985 is the March high
Support:
The recent April highs at 10,264
10,065 from March 2004 lows.
10,000 the recent lows.
9988 from September 2004.
9933 to 9900
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
July 05
Factory Orders, May (10:00): 2.9% actual versus 3.0% expected and 0.7% prior (revised from 0.9%)
July 06
ISM Services, June (10:00): 62.2 actual versus 58.9 expected and 58.5 prior
July 07
Initial Jobless Claims, 07/02 (08:30): 319K actual versus 320K expected and 312K prior (revised from 310K)
July 08
Non-farm Payrolls, June (08:30): 195K expected and 78K prior
Unemployment Rate, June (08:30): 5.1% expected and 5.1% prior
Hourly Earnings, June (08:30): 0.2% expected and 0.2% prior
Average Workweek, June (08:30): 33.8 expected and 33.8 prior
Wholesale Inventories, May (10:00): 0.5% expected and 0.8% prior
Consumer Credit, May (15:00): $4.0B expected and $1.3B prior
End part 1 of 2
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