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world stock market, us stock market
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7/23/05 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts: BRCM; GNSS; UPCS; CDIS
Buy alerts: VIVO; PWR; JUPM
Trailing stops: None issued
Stop alerts: DTAS; NVDA
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SUMMARY:
- Stocks overcome obstacles and melt higher into weekend.
- So China has agreed to float the yuan. So what? We should focus on the real issues.
- Market gets dose of reality to temper the good news saturation.
- Earnings running ahead of expectations for third consecutive quarter, helping spur and hold gains thus far.
Stocks overcome Thursday issues, recoup some losses.
Thursday's uncertainty was not necessarily cleared up Friday what with some earnings disappointments from MSFT and key biotechs as well as continued terror problems in London. Stocks wee set to basically open flat, but found an early bid and jumped higher out of the gates. SP500 stalled near the 1229 level in that opening salvo, however, and that sent the market into negative territory as it appeared the morning events, particularly the continuation of the London terror issues, were spooking investors heading into the weekend.
Stocks were iffy to begin with given the MSFT earnings and Google's lukewarm guidance. It did not help that the recent leading biotech sector was racked by a big earnings miss from AFFX. Those heavyweights worked to offset some excellent results from BRCM, GNSS and others, at least early on.
Europe was one of the keys to the ultimate success Friday. When its markets turned positive to close, that helped the US markets shake off the worries and rally positive mid-afternoon and into the close. If the markets where the trouble is can close positive, the least we can do is close positive.
It was no big surge, but the major indices turned green, some in a big way. SP600 rose 1.5%, followed by a 1.3% SOX gain. SP500 was decent at 0.5% while NASDAQ was the caboose, scratching out a 0.1% gain. Volume was lighter and breadth, having held positive all session in a sign of some internal strength, rallied in the last hour to a decent showing. Again, it was no big surge, but once more the market showed the resilience in the face of adversity that has kept this rally moving forward. If these events had occurred in the first part of 2005 up to March or April the plunge would have been dramatic. As it is now these issues are inconveniences, providing reasons for some to take some gains and opportunities for others to join the rally at a bit lower price point.
The market is still at a point where it faces some adversity from the NASDAQ 2005 high and a high saturation of earnings data, but the troublesome issues that hit at the end of the week actually are a help. They help weed out some of the weak holders, take some of the fluff and complacency out of the move, and give the rally more upside space. In addition, the fact that earnings results are running at a 10% improvement versus the 7.7% expected is providing additional push; expectations have once again beaten expectations by enough to drive stocks higher for now.
THE ECONOMY
China revaluation won't solve many problems.
China makes a good scapegoat for a variety of problems whether perceived or real. The USSR is not around anymore but China is a big communist country that is now industrializing, and what better object of blame is there? Make some poor economic decisions in the late 1990's (the Fed hiking rates, flooding the economy with money ahead of Y2K, then draining the money supply pool) threw our world leading economy into a recession that dried up investment capital and basically gave away our technological advantage built during the boom from the early 1980's to the late 1990's. During that bust the US companies floundered for three years as the rest of the world continued to invest in their R&D. In order to survive and compete with the new rivals that had closed the technology gap (and also to overcome onerous US tax laws on corporations) US companies had to send some jobs to other countries where labor resources were cheaper. The solution? Blame those countries for having cheap labor instead of dealing with the root issues here at home. Thus came the 'float the yuan' cry as if that would somehow cure the problems here at home. Once more we seek to apply a band aide to a symptom rather than cure the problem.
One of the ideas of a floating yuan is that it will rise vis- -vis the dollar, thus making Chinese goods more expensive relative to US goods and thus save some jobs here in the US as the domestic companies could compete better and keep some jobs. When our lawmakers leave Wonderland we can look at the hard facts. A modest float in the yuan is not going to offset labor costs that are fifteen times higher in the US than in China. Chinese goods will become a little more expensive, US goods will remain expensive by comparison, and jobs that can be performed elsewhere cheaper will still migrate toward those cheaper markets. All that will really happen is that we will pay higher prices. As we said Thursday night, the US has decided to import some inflation in an attempt to save some jobs in mature industries where the main concern is cost reduction.
We have discussed this before, but the last few days have brought the matter into clear relief as more and more job cuts are announced at large, mature companies that simply cannot compete globally given the labor rates. When other countries reach our levels of expertise in certain fields, those jobs will go to the lowest priced labor market where the work can be done properly. Because we have advanced labor/management relationships in many industries (the unions, labor associations, etc.) our costs are higher. Rightly or wrongly, they are higher and that makes it tough to compete with labor rates in other countries.
There were many examples this week with Ford being the clearest because of its labor issues. The US automakers cannot compete because of their labor contracts. GM is talking renegotiating. This week Ford speculated on cutting 10,000 additional white collar jobs (middle management) to cut costs in what is clearly preparation for a showdown with the line worker unions in the future.
In addition to Ford, Kodak announced 10,000 jobs cuts of its own. Kimberly-Clark announced 6,000 job cuts. Earlier in the week HPQ announced 14,500 job cuts. The announcements are piling up like road kill in these mature companies and industries that have stopped growing in the sense of growth companies and are cutting costs wherever possible in order to maximize earnings from their cash cows. When a company no longer sees growth potential it starts cutting costs that do not contribute to the bottom line. It wants to bring as much of the top line to the bottom line because it knows it has to make the money while its cash cow products are still in demand. Job cuts are the biggest overhead and thus they really boost the bottom line. Look at AT&T. It tripled its profit in Q2 by cutting costs, a big chunk of which centered around 6,000 job cuts (13% of its staff). The way for a slow or no growth business to raise earnings is to cut costs.
Float the yuan? No, invest in the US.
Again, this kind of job loss is not going to stop because China starts floating the yuan. Even a pure float would not do the trick. The labor differentials are too great and mature industries have got to get competitive or die.
If you want new jobs you have to create an environment that fosters the investment, research and development that generates the new technologies and industries that create the jobs of tomorrow. Why spend money to save underwear making jobs in a country that is supposedly in an information age? Why not put that money into re-educating those people for the jobs that are in demand, e.g. healthcare? Why not provide incentives to invest in the US in new industries and technologies? We lost our lead built during the 1980's and 1990's boom due to governmental missteps, so why not fix the problem with some incentives to once more ignite the venture capital market and get start-ups up and running?
That is the way we create the jobs that we really want, that so many in Congress moan and whine about needing. They want the jobs and bad mouth this recovery yet they won't let go of their precious spendthrift ways to put money to work in the free markets instead of government programs laden with pork, corruption and out and out fraud that work more to hold people down than let them climb the economic ladder.
Our strength has always been our ingenuity and willingness to outwork anyone on the planet. That is a powerful combination when it is not hamstrung by regulation or fear that the Fed or other governmental arms will crash the party just when you have made your investment and are just about to see the fruits of your risk taking. That is still a major problem today; companies fear what the Fed is going to do (the bond market fears it as well) as they remember 2000 and don't want to get too invested in overhead just to have the Fed wreck things once more.
That is why we need to address what the problems really are and stop trying to blame the communists. They are no doubt a formidable competitor and will only grow in strength over the next twenty years, particularly after we squandered our technological lead (and of course gave China many of our secrets in the 1990's. The way to beat them is not to snipe that their currency policies or complain about what is fair (as one of my law professors would say, 'fair is a place where you ride rides'), but to encourage investment, research, and development here in the US so we can establish our technological dominance again and thus create the jobs that we want to have, the jobs that raise our standard of living.
In short, we don't want to act like a mature growth company, burdened by tremendous overhead (our social programs that don't work, a bloated federal bureaucracy, overregulation, over-taxation) and looking for ways to cut costs. Instead we want to act like a growth company, looking for new ways to make money and grow, plowing earnings back into R&D, hiring the best and brightest, looking to where we want to go and grow as opposed to trying to cling to what we had.
THE MARKET
MARKET SENTIMENT
VIX: 10.52; -0.45
VXN: 12.95; -0.52
VXO: 10.16; -0.41
Put/Call Ratio (CBOE): 0.8; -0.13
Bulls versus Bears:
After a bump higher, bulls were down slightly last week while bears edged higher. They are both outside the levels considered bearish, but they are walking a thin line just this side of those levels.
Bulls fell to 52.7% after bumping up to 54.5% the week before. It is trying to trend lower after peaking the first week of July. Hit 55.1% at that time. Bulls bottomed in early May at 43.5%.
Bears moved higher to 23.1%, rising for the third week, up from 22.2% and 21.1% before that. That keeps them above the 20% level for the third week after dipping to 19.1%. Below 20% is considered a bearish indication for the market. Hit a high for the year at 30% in early May.
NASDAQ
Stats: +1.14 points (+0.05%) to close at 2179.74
Volume: 1.726B (-18.04%). After two big sessions of volume that saw accumulation Wednesday and distribution Thursday, volume backed off to average Friday on a modest gain. Kind of ran in place on lower volume, digesting the news from Thursday and more on Friday. Avoided a second session of selling, an indication the Thursday selling was more transient. This week will tell more. As noted Thursday, one distribution session does not derail a rally, particularly when it was based on this kind of news.
Up Volume: 879M (-86M). Dead heat as with the other internals.
Down Volume: 797M (-325M)
A/D and Hi/Lo: Advancers led 1.74 to 1. Not bad breadth even as NASDAQ was basically flat. The large cap techs were under pressure while the smaller cap techs were the performers.
Previous Session: Decliners led 1.7 to 1
New Highs: 144 (-15)
New Lows: 14 (+1)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
Gapped slightly lower, sold off down to some support near 2163, and then managed to recover for a modest gain on the close. Lighter volume so not much to take from this other than some buyers moved in on weakness related to continued bad news and pushed the index back up. NASDAQ is still below resistance at 2191 from January 3, and after a strong run with little rest it is actually now getting some. It started to pullback 7 sessions back, jumped on strong volume on some good earnings and economic news, and then sold back on the London news. This bad news the past couple of sessions could actually be some good news for the index; it has come a long way fast and needed some rest to take on resistance at 2191. A test back to the 10 day EMA (2156) would better set up the next move.
SOX was a market leader again with its 1.3% gain but it closed well off of its intraday high (480.30) after it broke to a new 12 month high. It is approaching some resistance at 490 from May and June 2004. Moving well and taking on some of the leadership mantle.
SP500/NYSE
Stats: +6.64 points (+0.54%) to close at 1233.68
NYSE Volume: 1.37B (-17.35%). Volume backed off to below average Friday after three strong, above average volume sessions. Two accumulation (Tuesday and Wednesday) and one distribution (Thursday) as volume took on a better tone with respect to stronger trade. As with NASDAQ, a single distribution session can occur in a rally without killing it.
A/D and Hi/Lo: Advancers led 2.12 to 1. Excellent breadth as the small and large caps were participating together.
Previous Session: Decliners led 2.17 to 1
New Highs: 231 (-14)
New Lows: 20 (-1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Right back up after a volume dip Thursday pushed SP500 back to the 10 day EMA (1225). A bit choppy the past week, but overall still trending higher up the 10 day EMA. The lateral action may have been enough to work out some of the froth along with the negative news that shook out several short term profit takers. Still at a 4 year closing high and still in position to do some more damage as it is above near resistance.
Not quite a new all-time high on SP600 but it recovered almost all of the Thursday selling as it continues to trend higher above the 10 day EMA (346.38). Broke out to start July and is making its second test of the 10 day. In a strong move that typically leaves at least two more such bounces ahead and that means more upside.
DJ30
DJ30 continues to move laterally along the 10,650 level where it has found some resistance the past week as it tried to make the break above the June highs (10,646 to 10,656). Got some volume Tuesday and Wednesday as it moved higher, and spent Friday tapping the 10 day EMA (10,473) on the low and rebounding for a modest gain. It is set up for the continued move as it weathered INTC and MSFT.
Stats: +23.41 points (+0.22%) to close at 10651.18
Volume: 231 million shares Friday versus 281 million shares Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
MONDAY
Earnings continue to roll on and thus far the results have been hot and cold with the big names but overall up 10%ish, better than expected. While the individual big name disappointments (INTC, MSFT, C, AFFX, YHOO) rattled stocks for that day, the impact was mostly limited to those stocks as the market overall has continued its advance though more haltingly of late. With all of the extraneous news, the ability to continue higher and to shake off the negative issues outside the market shows investors still ready to buy in.
As noted last week, a lot of that is new money jumping into the market after holding back in the belief the market and economy did not experience enough angst during the bust and recession to sustain any upside move. As stocks keep breaking through key resistance levels (SP500 to a new 4 year high was the real kicker last week), that is forcing more shorts to cover and more money to move in on the long side.
That can jump the market up short term and then also result in some downside near term after that money comes in and there is a lull in any new money working its way into positions and some inevitable profit taking results. May already be working on that; after the Wednesday breakout the immediate selling Thursday took some of the fluff out. SP500 looks ready to continue the move already as does SP600.
How NASDAQ handles 2191 resistance will be test for the rally. The pullback from that level with the rocky news to end the week helps set it for that move; a test to the 10 day EMA would be better. NASDAQ broke higher out of its pattern in early July, has made a good move. A test of the 10 day EMA similar to SP600 would set up the next break higher after the test. The market needs this leader to continue its move and as it held up with the MSFT, INTC, etc. earnings disappointments it looks to have the strength.
Support and Resistance
NASDAQ: Closed at 2179.74
Resistance:
2191.60, the January intraday high.
2215 is the June 2001 closing high.
2264 is the June 2001 intraday peak.
2313 is the 5-22-01 closing high.
2328 is the May 2001 intraday high.
Support:
2178 is the January closing high.
2163, the mid-December closing high has stalled NASDAQ recently.
2151, the early December closing high and highs from January 2004
The 10 day EMA at 2156
The 18 day EMA at 2134
2100 was key resistance point, and a successful test sets it up as support.
The 50 day EMA at 2087
2075 to 2078
2051 from February, March price points.
S&P 500: Closed at 1233.68
Resistance:
Price tops at 1265 from 1-28-99 and 2-99 & price bottoms from 12-20-00
Price top at 1-6-99 at 1272
Price tops at 1290 from 5-23-00
Price tops at 1364 from 1-29-01
Support:
The March 2005 high at 1229.11
The March 2005 closing high at 1225 and the 10 day EMA at 1225
The June high at 1220
The 18 day EMA at 1219 and the December high at 1217
The February intraday high at 1212.
1200 is some support
The 50 day EMA at 1205
1196, the mid-January high and the early December peak in the left shoulder.
The April high at 1194
The early May high at 1178
1175 second high in that double top that spanned late 2001 and early 2002
Dow: Closed at 10,651.18
Resistance:
The June highs at 10,646 to 10,656
10,754 is the February high
10,868 is the December 2005 high.
10,985 is the March high
Support:
Price consolidation at 10,600
The April high at 10,557
The 10 day EMA at 10,593
The 200 day SMA at 10,473
The May high at 10,406
10,400, the bottom of the November/December range
The recent April highs at 10,264
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
July 25
Existing Home Sales, June (10:00): 7.13M expected and 7.13M prior
July 26
Consumer Confidence, July (10:00): 106.2 expected and 105.8 prior
July 27
Durable Goods Orders, June (08:30): -1.0% expected and 5.5% prior
New Home Sales, June (10:00): 1300K expected and 1298K prior
July 28
Initial Jobless Claims, 07/23 (08:30): 320K expected and 303K prior
Help-Wanted Index, June (10:00): 38 expected and 37 prior
July 29
GDP-Adv., Q2 (08:30): 3.5% expected and 3.8% prior
Chain Deflator-Adv., Q2 (08:30): 2.7% expected and 2.9% prior
Employment Cost Index, Q2 (08:30): 0.8% expected and 0.7% prior
Michigan Sentiment-Rev., July (09:45): 96.5 expected and 96.5 prior
Chicago PMI, July (10:00): 55.0 expected and 53.6 prior
End part 1 of 3
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