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us stock market, understanding the stock market
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07/26/05 Investment House Daily
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SUMMARY:
- Modest gains on rising volume as market refuses to back down.
- Consumer confidence lags expectations but still strong enough.
- Durables orders take on a bit more importance after confidence numbers
- Next leg is setting up behind the headlines.
Stocks hold over the 10 day EMA once more, posting gains.
After a down session Monday it was time for another upside day in the back and forth action of the market the past week. Sure enough futures were higher and stocks started the session higher as well as earnings overall continue to assuage investors. Despite the positive open, stocks struggled to put together any lasting gain. The early bounce faded midday, then stocks rallied back once more with NASDAQ breaking to a session high after lunch. It stalled out below the recent highs and SP500 once more found 1234 tough going. The large caps and techs faded some into the close, but managed to hold positive.
It was not the best intraday action, particularly on SP500 with it giving back all of its afternoon rally in the last half hour of trade, but it was not a bad session. Stocks once more traded in a narrow range, even narrower than Monday. Volume rose as stocks posted a gain, good action returning once more after that one day of distribution last Thursday. Moreover, the big indexes easily held above their 10 day EMA as they continued to work laterally above that level.
What looked like a sure pullback is looking more like a lateral move to consolidate the recent gains. That is an indication of stronger support for stocks even at these higher levels as there just are not that many sellers to push prices lower. When stocks are stingy with gains that is a bullish sign as no one really wants to let go of their positions they have recently taken. After enough consolidation the sellers have done there work and then demand takes over. That is what vaults stocks higher in their next move.
The gains were modest at best with SOX and NASDAQ leading (1%, 0.4%) while SP600 (0.3%) AND SP500 (0.2%) were not far behind. Given stocks looked set for a more significant pullback, however, the gains on rising volume were solid. With such tame gains it is easy to overlook the session or write it off as insignificant, but it was another piece of a consolidation that is setting up better and better.
Earnings continue to drive some stocks, both up and down. As is typical it is not clear just what is driving some stocks higher on good results and some lower on good results; there are always vagaries in each report that investors pick out. All in all, however, stocks are holding their gains and their current trend even as some stocks are pounded lower and some are pushed higher. That is part of the consolidation process, and as noted, the market is hanging onto its gains as it turns what looked to be a pullback into a lateral move.
THE ECONOMY
Consumer confidence lags expectations on jobs, gasoline issues.
The 103.2 reading was lower than the 106.2 expected and the 106.2 from July (revised from 105.8). That elicited the usual commentary about the consumer slowing after three upside gains in confidence. The survey showed those finding jobs harder to come by rose to 23.8% from 22.5%. Those viewing jobs were plentiful held steady at 22.5%. Thus the drop in confidence.
Overall sales are not falling off, and that is really no surprise. With confidence over 100 (and indeed pretty much everything over 80), there is no threat that buying will decline to levels that will threaten the economy. That will come when gasoline hits $3/gallon. Prices are now near $2.20/gallon nationally, and that is providing some breathing room.
If we can avoid a spike in the last 5 weeks of 'driving season' then maybe we can slip into the fall without a significant drop off in consumption. Many are already factoring in just that scenario. Problem is there is just too much uncertainty out there. Hurricane season has barely started and three have been three hurricanes at least threaten the US. The season runs until mid-October, and the really intense part of the season is still far off. One or two storms through the gut of the oil producing areas of the Gulf of Mexico shoots oil prices higher. If one or more of the gasoline plants along the Texas, Louisiana or Mississippi coasts gets hit or shut down then gasoline prices surge. Thus we are not writing off the possibility. We are not counting on it, but it pays to be aware of the real possibilities and the foolishness involved in saying it won't happen.
THE MARKET
MARKET SENTIMENT
VIX: 10.99; -0.11
VXN: 13.56; -0.02
VXO: 9.96; -0.47
Put/Call Ratio (CBOE): 0.85; +0.05
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: +9.25 points (+0.43%) to close at 2175.99
Volume: 1.721B (+12.3%). Volume was up as NASDAQ bounced from the Monday selling. While not a clear indication of resumed accumulation, it was a continuation of the good price/volume action that appeared before distribution session last Thursday. As long as this kind of price/volume action continues the consolidation is in good shape.
Up Volume: 1.047B (+471M)
Down Volume: 571M (-361M)
A/D and Hi/Lo: Advancers led 1.38 to 1. Turned from negative to positive by the close but remained quite modest as with the index moves overall.
Previous Session: Decliners led 1.63 to 1
New Highs: 136 (-37)
New Lows: 27 (+10)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
As with the rest of the market, NASDAQ refuses to fold up. Monday's resumption of the selling, even with the very low, below average volume that session, indicated a further pullback was ahead. Tuesday, however, techs were buoyed some by TXN earnings and managed a modest gain for the session. This keeps NASDAQ above the 10 day EMA (2161) as it trades in a narrowing range above that near support level. It is still likely to test that near support, but this tightening range and refusal to give up the gains is a very good indication that the consolidation is working and that NASDAQ may not give up much more ground before resuming its move. News can always wreck the consolidation, e.g. earnings, but for now NASDAQ is showing the right price/volume action and leadership as it makes this test.
SOX posted a gain as well, and as is typical it led the upside with a 1% move. It is pushing against the recent highs, holding well above its 10 day EMA (466.90), having yet to seriously test toward that level. Given the strength it has shown it may not make that test before it is ready to continue the move.
SP500/NYSE
Stats: +2.13 points (+0.17%) to close at 1231.16
NYSE Volume: 1.471B (+13.22%). NYSE volume was up and above average as well Tuesday, supporting the modest gains. Not viewing this as churning, but just a resumption of the good price/volume action prior to last Thursday's distribution.
A/D and Hi/Lo: Advancers led 1.39 to 1
Previous Session: Decliners led 1.7 to 1
New Highs: 222 (-58)
New Lows: 27 (+1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Similar to NASDAQ, SP500 is working laterally over the 10 day EMA (1226.70), easily holding above that level as it works in a tightening lateral range. Very good action where it holds the gains and shows overall good price/volume movement. From an apparent pullback of more consequence, the move looks to be converting into a tight lateral move above near support, a stronger move.
Unlike the other indexes, SP600 has come back to fully test the 10 day EMA (347.27), but all it did was tap that level on the low and rebound for a gain on the session. Rising volume was a good added touch but the small caps were not in a leadership role Tuesday, lagging NASDAQ and SOX. Still positioned to continue higher for another bounce or two on this run before it needs a deeper test.
DJ30
The blue chips were hampered by DD as its earnings were sub-par. That pushed DJ30 below the 10 day EMA (10,591) on rising volume, but it was still below average trade and DJ30 is still above the 18 day EMA (10,555) as it makes the test of the recent move off 10,250.
Stats: -16.71 points (-0.16%) to close at 10579.77
Volume: 220 million shares Tuesday versus 190 million shares Monday. Volume jumped thanks to DD selling off, but it was still below average indicating DJ30 is still in a relatively orderly pullback to test the recent run.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Earnings continue to fly and are having very significant impact on the companies reporting. On balance they have been strong enough with enough good guidance to keep pushing stocks higher. The market is still on earnings overload at this point, however, and that is why the upward momentum has stalled out the past few days. The uptrend is not gone, but the advance needed a breather and this move above the 10 day EMA appears to be the rest it is willing to take.
Indeed, even with the river of earnings results out each session the market is still going about its own business, forming a lateral move to consolidate the rally to this point. Stocks are not completely immune to earnings, but the general picture has been established: once more better than expectations though not a blowout quarter.
Friday the durable goods orders will be more important given the consumer confidence reading that failed to match expectations, but unless it is really a disaster it will likely not impact the action significantly, i.e. it won't change the current consolidation. No, what is happening now is the market is rather quietly going about a very solid consolidation. Anytime the market refuses to give up gains and maintains good price/volume action, that is good for the upside. Each session we are overwhelmed by microanalysis of the day's move without tying it all up or tying it up with the wrong interpretation or taking too general an approach to provide any use (e.g. "It is time to be fully invested . . ."). The market needed a rest, it is taking that rest, but at this juncture it is refusing to give up hardly any ground. That is a good indication for an upside breakout to come, and we want to be looking at the stocks ready to make the move when the market shows us the consolidation is hover.
Given the market does not appear ready to make a more serious pullback, we are looking for those stocks that have matched the market with a nice test of near support after a recent breakout. We don't want to chase stocks that are extended, i.e. on the fourth or so bounce off the 10 or 18 day EMA after a breakout; that is asking for a problem. We want to catch then on the breakout of on the test. The market produces waves of breakouts when it moves higher, and with this recent pullback/lateral move there are some more stocks working on handles to their bases as appear in the report. There are also stocks making that key first or second test of the breakout, and they provide excellent opportunity as that first successful test of a breakout shows the breakout was for real as the buyers move back in even at a higher price. That gets us in on a solid stocks that still has plenty of upside ahead of it.
Support and Resistance
NASDAQ: Closed at 2175.99
Resistance:
2178 is the January closing high.
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:
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 2161
The 18 day EMA at 2142
2100 was key resistance point, and a successful test sets it up as support.
The 50 day EMA at 2094
2075 to 2078
2051 from February, March price points.
S&P 500: Closed at 1231.16
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 1226.70
The 18 day EMA at 1221 and the June high at 1220
December high at 1217
The February intraday high at 1212.
1200 is some support
The 50 day EMA at 1207
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 10,579.77
Resistance:
Price consolidation at 10,600
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:
The April high at 10,557
The 18 day EMA at 10,555
The 200 day SMA at 10,478
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): 7.33M actual versus 7.15M expected and 7.14M prior (revised from 7.13M)
July 26
Consumer Confidence, July (10:00): 103.2 actual versus 106.2 expected and 106.2 prior (revised from 105.8)
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): 2.6% 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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us stock market
understanding the stock market
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