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us stock market, understanding the stock market
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7/13/05 Technical Traders Report
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Technical Traders Report Subscribers:
Jon Johnson is traveling again this week, once more visiting companies for investment opportunities. This week he is in the Austin area. The reports may be a bit abbreviated, but as always he is sending in his market commentary and play selections.
MARKET ALERTS
Targets hit alerts: SOSA
Buy alerts: MRVL; ILMN; GNSS
Trailing stops: EPAY
Stop alerts: PUMP
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
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The new seminar series is scheduled to be ready in July, and we are closing out the inventory on the current series CD's at fire sale prices. Save on the best technical analysis, stock splits, covered calls and options seminars and enhance your understanding of market and stock moves and learn straight forward strategies to put that understanding to work and make more money. A great bargain.
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SUMMARY:
- Stocks pausing at resistance, holding gains on lighter trade.
- China GDP slowing in 2005 along with oil demand.
- Earnings and CPI are on tap for Thursday.
No surprises Wednesday as stocks take a breather at resistance.
Tuesday started to show signs of a slowdown in the move higher and Wednesday was confirmation of at least a pause in the action. Stocks started soft and stayed soft all session, but that in itself was not bad action. SP500 tried next resistance at 1225 three times but was unable to punch through. Volume was lighter and dipped back below average on both NYSE and NASDAQ, and without the trade and having already run 100 points on NASDAQ and 42 points on SP500 and a major earnings flood just around the corner, stocks found it hard to make headway.
There was no real news to send stocks higher. Oil and gasoline inventories were much lower than expected (-3.9m bbl, -2.7m bbl) while distillates rose substantially (3.2m bbl); oil was not impacted much price-wise and stocks paid it no mind as well. IBM was upgraded, and that helped the Dow lead the market higher, but it was a modest gain at best. Kind of ironic but true to form: the market has to be pretty weak before the Dow leads.
Tuesday we talked about all of the love slathered on the small caps on the financial stations, and how that might adversely impact them down the road. When the move gets headlined in the mainstream news then it is typically getting long in the tooth. Wednesday the small cap SP600 dropped 0.5%, leading the market lower. More a coincidence than cause and effect, but as the small caps have led the charge the hardest we can anticipate they will sell a bit more than the other indices on the test. What we watch for is breakdowns in its stocks and in the index on higher volume. That is not happening right now; thus far this is just a pullback to test the recent strong move.
In sum the market basically held steady on lower volume after a solid rally that broke out NASDAQ over 2100 and rallied stocks to next resistance. Holding gains, refusing to give them up is a good sign of the health of a move. Stocks are just taking it easy on lower volume, holding the gains. Still expecting more of a pullback, and the Wednesday market action is a good start.
THE ECONOMY
China growth projected lower.
Stop the presses. China's 2005 GDP growth is expected to be just 8.8% versus the 9.5% in 2004. Holy cow. Must be a recession coming. Earlier in the week it was projected that Chinese oil demand grew just 5% through July versus the 45% jump during the same time last year.
It has always been pretty clear that China's growth curve would have to start slowing, but the 0.7% drop hardly seems significant when you are talking 8.8% gains. Given the high levels, however, that drop impacts a lot of areas including oil demand. They are still very high levels and will still keep a fire under commodities and oil. The real question is how the trend plays out through 2005 and into 2006. For now, even with the drop in Chinese oil demand this year it is still at levels that will keep prices higher. As long as the major industrial economies continue to expand oil demand will remain high.
THE MARKET
MARKET SENTIMENT
VIX: 10.84; -0.11
VXN: 14.88; +0.11
VXO: 10.8; -0.02
Put/Call Ratio (CBOE): 0.76; -0.02. Is not running higher in anticipation of a market drop. We will be watching to see if it ramps up toward 1.0 again as the market pulls back in this test of the recent upside gains. That would show a bit of nervousness still in the market, though the sentiment indicators as a whole remain at levels considered to show complacency.
Bulls versus Bears:
Last week: A bit of improvement in the bulls/bears sentiment indications with both ends moving to levels that are just below those considered bearish. Last week they were clearly in the bearish indications and the market sold. That cleared out some of the bulls and upped the bears, but they are still right at the bearish threshold.
Bulls fell to 53.9% from 55.1%. That put them back at the level of three weeks back and ended the weekly gains at 7 weeks. Bulls bottomed in early May at 43.5%.
Bears rose to 21.4% from 19.1% the week before. That puts them over the 20% level considered bearish. Quite a drop from the 26.1% a few weeks back and the 30% reading in early May.
NASDAQ
Stats: +0.96 points (+0.04%) to close at 2144.11
Volume: 1.566B (-5.53%). Volume shrank Wednesday as NASDAQ showed another doji at the 2151 level, the next resistance point for the index. After some decent (but hardly blowout) volume on the move higher, the lower volume as it pauses indicates there is no churning (high volume turnover) that would suggest stocks being sold out in volume. That is what you want to see, lower volume as an index runs out of steam and starts to make a typical pullback.
Up Volume: 964M (-71M)
Down Volume: 563M (-38M)
A/D and Hi/Lo: Decliners led 1.23 to 1. Very modest downside breadth as NASDAQ was treading water at next resistance.
Previous Session: Advancers led 1.07 to 1
New Highs: 132 (-64)
New Lows: 26 (+6)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ has rallied to next resistance at 2051, and for the second session stalled at that level on lower volume. Though it posted a gain Wednesday the session was a push, unable to advance without volume but also unwilling to give up the recent gains. We don't expect it to hold up without losing any ground, but it is good to see the first stages of a slowdown in a move showing tenacity and not reversing on higher volume. That means the bids have dried up but the sellers are not taking over. Once the index eases back and digests some fo the gains it is ready to go once more as demand then overcomes the supply as buyers step in at the lower prices. Thus we still expect NASDAQ to pull back a bit more beofre making another run at 2151.
Semiconductors helped lead the gains once more as SOX posted another higher close after breaking out from its 8 month trading range with its move above 450. SOX has rallied 40 points in the run higher over the past week and we could expect a pullback on this index as well.
SP500/NYSE
Stats: +1.08 points (+0.09%) to close at 1223.29
NYSE Volume: 1.355B (-6.67%). Volume backed off on NYSE as well as SP500 posted a modest gain and as SP600 and SP400 faded. Given the action in the leading small cap index to the downside, the lower volume (lower and below average) is what you want to see as it shows there is no wholesale dumping of those stocks, just short term profit taking. Once the short term sellers are gone the buyers will be ready to drive it higher.
Up Volume: 946M (-234M)
Down Volume: 852M (+128M)
A/D and Hi/Lo: Decliners led 1.23 to 1. As with NASDAQ, very modest downside volume given the 0.5% drop in the small cap SP600. That is what hurt the overall NYSE breadth.
Previous Session: Advancers led 1.36 to 1
New Highs: 251 (-148)
New Lows: 22 (-1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 slowed its move for the second session as it too butted up against next resistance at 1225, the March closing high. It is taking a breather, consolidating the run off of the 50 day EMA (1192) to this point. It looks ready for a pullback to test the move, and it needs to hold near 1220ish and then provide the breakout move to get through this resistance and put to rest this resistance level that has held it captive and pushed down other breakout attempts over the past 7 months.
The small cap SP600 led the market lower with a 0.5% drop, but that is well within reason given the recent breakout to a new all-time high as the index led the entire market higher. Given NYSE volume was lower on the session there was no dumping of these shares. This is showing us the pullback toward the 10 day EMA (341.68) as indicated in the Tuesday report.
DJ30
You know it is a slow day when DJ30 leads the market. An upgrade of IBM helped spark the move in the industrials, pushing DJ30 further above its 200 day SMA (10,456) and right to the April high at 10,557 but still well below the June tops at 10,646 to 10,656. Still deep in its base and still building, and still not a leader.
Stats: +43.5 points (+0.41%) to close at 10557.39
Volume: 216 million shares versus 233 million shares Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
Some solid results from AMD and AAPL after hours put a pretty decent spin on the earnings season though it is still very early and some heavy hitters such as YHOO are on tap. AAPL pretty much beat the street about the head and shoulders with its results and was up $1 after hours. AMD was finally released for trading and it jumped after hours as well. The results were good enough to drag QQQQ higher as well. That puts techs in a pretty good position for Thursday, but they are also at resistance after a solid surge higher. In other words they may not be ready to make a new break higher, but one thing has been easy to do of late, and that is to believe NASDAQ and some of the other indexes had run out of gas.
Earnings will be key but investors will also be looking at the CPI out before the open as confirmation that the Fed may be putting the finishing touches on its rate hiking campaign. Expectations are that it will continue to show a slow rise and the market has been building that in as part of its view that the Fed is close to done.
Thursday could be a session where good news does not have a lot of impact. The market has rallied solidly the past week and delivered a key breakout. When a market gets a bit top heavy it will find a way to rest when it needs it despite the news. It would take some really good news to break it higher once more and keep it moving. Indeed, we would be concerned if the earnings and CPI broke it out with a gap higher on the open as that gap would have a probability of failing or at least being filled before the market was ready to move higher.
As of Wednesday the market is still in the rest mode, taking a breather after a strong move. It needs a few more sessions of the same with a bit of a pullback sprinkled in. This is very healthy action as it will work to set up new buy points. Many stocks remain overextended at this point and could use a bit more rest before continuing higher. We don't want to step into stocks that are extended on this move. We also see a few that are still set up to make their moves if they get the impetus. One thing we will be watching for is that gap higher from this level; it could keep running on the move, and if we see good volume on stocks that are making their breakouts or rebounding off support we will participate in them. The overall market, however, is showing signs of topping a bit on this current move, so we really want to see volume on those stocks that are in position and are making their moves.
Support and Resistance
NASDAQ: Closed at 2144.11
Resistance:
2151, the early December closing high and highs from January 2004.
2163, the mid-December closing high.
2178 is the January closing high.
2191.60, the January intraday high.
Support:
2100 was key resistance point, and a successful test sets it up as support.
The 10 day EMA at 2106
2075 to 2078
2051 from February, March price points.
The 50 day EMA at 2061
Early April high at 2021, February lows at 2023.
The April high at 2022 was the higher high point.
The 200 day SMA at 2040
S&P 500: Closed at 1223.29
Resistance:
The March 2005 closing high at 1225.
The March 2005 high at 1229.11
Support:
The June high at 1220
December high at 1217
The February intraday high at 1212.
The 10 day EMA at 1210
1200 is some 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 1197
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 1179
Dow: Closed at 10,557.39
Resistance:
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 200 day SMA at 10,456
The May high at 10,406
10,400, the bottom of the November/December range
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 13
Export Prices ex-ag., June (08:30): -0.1% actual versus -0.4% prior
Import Prices ex-oil, June (08:30): -0.4% actual versus -0.3% prior
Trade Balance, May (08:30): -$55.3B actual versus -$57.0B expected and -$56.9B prior (revised from -$57.0B)
Treasury Budget, June (14:00): $28.0B expected and $19.1B prior
July 14
Retail Sales, June (08:30): 0.9% expected and -0.5% prior
Retail Sales ex-auto, June (08:30): 0.5% expected and -0.2% prior
CPI, June (08:30): 0.3% expected and -0.1% prior
Core CPI, June (08:30): 0.2% expected and 0.1% prior
Initial Jobless Claims, 07/09 (08:30): 322K expected versus 319K prior
July 15
NY Empire State Index, July (08:30): 9.0 expected and 11.6 prior
Business Inventories, May (08:30): 0.4% expected and 0.3% prior
PPI, June (08:30): 0.4% expected and -0.6% prior
Core PPI, June (08:30): 0.1% expected and 0.1% prior
Industrial Production, June (09:15): 0.4% expected and 0.4% prior
Capacity Utilization, June (09:15): 79.6% expected and 79.4% prior
Michigan Sentiment-Preliminary., July (09:45): 94.5 expected and 96.0 prior
End part 1 of 3
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us stock market
understanding the stock market
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