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us stock market, understanding the stock market
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8/11/05 Technical Traders Report Update
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Technical Traders Report Subscribers:
Full report issues Saturday.
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: IEX; JWN
Trailing stops: None issued
Stop alerts: None issued
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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SUMMARY:
- Stocks rally right back even as oil rises, but volume less than crackerjack.
- Retail sales miss expectations but do June's revisions even things out?
- Jobless claims push lower yet again.
- Dell follows CSCO in disappointing market, gets pelted with rocks and garbage after hours.
Stocks rebound from Wednesday reversal.
After oil thwarted a good early rally on Wednesday, it looked ready to do the same Thursday as once more it climbed to new current dollar highs (65.80/bbl, +0.90). Stocks, however, were higher pre-market and started the session higher as well. Another good morning session rally ensued with NASDAQ posting a 0.7% gain along with SP500 as stocks recovered the Wednesday losses.
Volume lagged on the morning rebound and when NASDAQ tapped at the 10 day EMA it ran out of gas. By lunch it had given up almost all gains along with SP500. It bounced modestly and faded, trying to form a head and shoulders. SP500, however, double bottomed and that set off an afternoon rally that pushed stocks to session highs on the close. The financial stations overstated the move, however, with calls of a 'breakout' as stocks rallied to the close. There weren't any breakouts on the indices. NASDAQ couldn't climb back over the 10 day EMA, DJ30 is still in its lateral range, and SP500, though looking better, is still below its July and August highs. It was a recovery from a pretty good whipsaw on Wednesday.
A lighter volume recovery at that. NASDAQ volume languished at below average levels, well off of the Wednesday drubbing but also higher than the three sessions before that where it was sliding back. Do you see it? A silver lining. A thin one, but a silver lining. NYSE volume was lower as well, but it was back above average on the gains, making two upside gains on above average volume versus the Wednesday reversal session on that very strong trade. It does not wipe away that distribution session but it does show continued resilience in the market overall in that NYSE indices came right back from the Wednesday reversal on good volume for a summertime session.
Why would stocks rally in the face of even higher oil when high prices were purportedly the excuse to sell on Wednesday? Maybe it was the lower than expected retail sales, suggesting the Fed would not have to be as aggressive in its rate hikes. After all, if consumers are paring back on purchases already, this continued spike in oil prices is not going to help. If the Fed sees it that way then the Fed would be more inclined to wrap things up sooner. As discussed Wednesday, however, based on the Fed's current comments and its history in dealing with energy spikes, it tends to view energy spikes as inflationary as opposed to an economic drag.
On balance for the session investors were inclined to view stocks still holding value at this level even with rising prices and the Fed still set to hike rates. It was not a definitive statement to that effect, however, as trade was lower as noted. Stocks remain resilient and are holding their uptrends for the most part, but it still looks as if SP600 and NASDAQ could stand a further test lower to reset for the next move higher.
THE ECONOMY
July retail sales fall short, June revised higher.
July sales rose 1.8% (2% expected) overall and 0.3% ex-autos (0.6% expected), showing a bit of slowing in demand out side of the auto sector and its 'employee' pricing promotions. No need to fear, however, because June was revised higher to 1.7% while the ex-autos number rose to 1% from the 0.7% originally reported. When you put the two together the total is what was expected, so no pain, no headache, right?
Maybe. It is never a good idea to take one month's data point and make grand conclusions. Revisions of economic reports are running at higher rates than in the past, so you almost have to let the smoke clear with the next report before you can make any hard and fast calls. You want to look at where the trend is taking you and view the data in that context. Right now the trend in retail sales remains solid, and these lower readings could very well be written higher next month.
At the same time it is also never good to overlook what the latest data might be telling you. First, retail sales include the cost of gasoline; it is sold at retail after all (with a hefty 45 cent federal tax included in there) and with rising prices across the nation (gas has topped $3 in parts of San Francisco) we know that a larger share of the sales went to filling up the tank. Indeed, gasoline sales were up 2.4%. Thus retail sales were lower, but more of the sales were consumed by rising gas prices. That means even less buying than the lower number suggests on first blush.
Further, when you look at the different categories of spending you see some weakness moving in. Electronics remained solid with a 1% gain, but clothing fell 0.5% (+1.1% in June); furniture, a key indicator of strength in many areas of the economy, fell 1.3%; building materials dropped 0.4%; department stores saw a 1.1% decline.
So there were key areas that were lower but as we have seen on many occasions over the past three years, when auto sales surge as they did in July on the employee pricing (+6.7%) we see a commensurate fall in other areas. The next month we likely see other areas improve as auto sales and other sales trade off based on what incentives are offered. We cannot lose sight, however, that overall sales were lower as gasoline prices rose. That is something we are going to see more of as consumers not only shift back to discounters such as WMT and TGT but also have to cut back on spending in other discretionary areas altogether as gasoline prices rise toward $3/gallon nationwide.
Jobless claims fall yet closer to 300K.
Claims fell to 308K last week, well below the 315K expected. The prior week was revised up to 314K from 312K. Once again claims were moving lower, dropping the 4-week average to 309,250, its lowest level since late February. Continuing claims fell 8K to 2.57 million. Recall how they were topping 3 million back in 2003.
Does this mean jobs are everywhere? Not necessarily, at least not the ones measured in the non-farms payrolls. As the unemployment rate has shown, more people are working but not at the 9 to 5 jobs. Thus we view this as a sign of economic health but not the end game as to where you want payrolls to be.
THE MARKET
MARKET SENTIMENT
VIX: 12.42; +0.04
VXN: 15.73; +0.06
VXO: 11.47; -0.39
Put/Call Ratio (CBOE): 0.94; +0.05. The ratio remains high even as the market recovers, one of the anomalies we have noted of late. There are many selling puts into a rising market and many buying them in anticipation of a fall as well. When the market goes the other way there is a lot of activity in the ratio even when you would suspect it to be quieter.
Bulls versus Bears:
Last Week
Bulls rose to 57.3% from 55.9%, the second straight session over the 55% level that is the level considered bearish. As we noted Wednesday and Thursday, the buyers had become exhausted and when that happens there is no ammunition left to push stocks higher. Bulls bottomed in early May at 43.5%.
Bears fell just a hair to 22.5% from 22.6%. Bears continue to dance just above the 20% level considered the crossover into bearish territory. With bulls running through the 55% level it is just about close enough for horseshoes. Dipped to 19.1% five weeks ago. Hit a high for the year at 30% in early May.
NASDAQ
Stats: +16.74 points (+0.78%) to close at 2174.55
Volume: 1.606B (-14.95%). Volume failed to match the Wednesday reversal volume, but we did not expect any upside to do so given that was a really strong volume spike. It was below average, however, so there was not a lot of conviction even if you tossed out the Wednesday trade. As noted above, volume was higher than the three sessions preceding the Wednesday reversal, so there was some stronger interest than in that selling volume. Doesn't wipe away the Wednesday trade but it shows the dogged resilience in the market that could help it prevent serous losses and keep this as just a test.
Up Volume: 940M (+363M)
Down Volume: 639M (-597M)
A/D and Hi/Lo: Advancers led 1.75 to 1. Much better upside breadth this time around, another item taking some of the sting off of the Wednesday distribution.
Previous Session: Decliners led 1.26 to 1
New Highs: 96 (-10)
New Lows: 38 (-7)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ rebounded, gapping slightly higher and finishing near session highs. It could not take out the 10 day EMA (2177) on the high, however, the near resistance point that has kept it in check since the selling started last week. Not a point that is going to drive NASDAQ to its grave of course; any moderate strength would push it through with relative ease. It held over 2151 for the second session, a point of support from previous interim peaks. Wednesday did not look good at all and Thursday helped take some of the sting away. It has held near support so there is the possibility of a continued run from here. We will be ready for that, but we anticipate it will test back toward the 50 day EMA (2198) before it is ready to run again.
SOX (+0.7%)looked pretty weak on the session though its action is very similar to NASDAQ. It tapped at some support at 460 on the low and rebounded, closing below the 10 day EMA (470.94) as well. A decent pullback is getting a stale look here after reversing from the early August breakout.
SP500/NYSE
Stats: +8.68 points (+0.71%) to close at 1237.81
NYSE Volume: 1.466B (-12.22%). Volume was lower but unlike NASDAQ managed to crack average as the NYSE indices recovered some lost ground. Not a blowout volume session but solid on a solid recovery from a potentially disastrous high volume reversal on Wednesday.
A/D and Hi/Lo: Advancers led 2.19 to 1. Nice recovery in breadth as the large and small caps were up with the small caps leading the action with their 0.9% gain.
Previous Session: Advancers led 1.38 to 1
New Highs: 196 (+6)
New Lows: 33 (-5)
The Chart: http://www.investmenthouse.com/cd/^spx.html
When all was said and done Wednesday SP500 still held a gain but it was wobbling after a high volume intraday reversal. It did not hesitate, however, and moved right back up Thursday, clearing near resistance and now looking back at the August high (1245.86) as its next victim. Volume was lower as noted but still managed to come in above average. It was not a wholesale endorsement of the SP500 but it remains in better position than NASDAQ to take a shot at the recent highs. Wednesday looked just about as bad as you could want other than a major sell off, but Thursday SP500 showed some of its same old strength.
The small caps were back in action, leading the market with a 0.9% gain. It cleared the 18 and 10 day EMA (348.21, 348.71) on the close, moving on that lower though still slightly above average volume. It remains, however, below the up trendline formed by the May and June lows. After breaking that trendline (350), this lower volume rebound suggests it could fail and move back down to the 50 day EMA (340.90) to reset its move higher after a strong run up the 18 day EMA from May to early August.
DJ30
Some called the Dow's move a breakout, but all it did was rebound from the Wednesday reversal on lower, average volume, maintaining its position within its 5 week lateral range. Not bad action at all but hardly a breakout. It would have to move over 10,720 to make the breakout from this range and free it up to even try for the March highs (10,985).
Stats: +91.48 points (+0.86%) to close at 10685.89
Volume: 234 million shares Thursday versus 258 million shares Wednesday. Not bad trade as DJ30 continues to try to make a break over the highs in the 'handle' to the 5.5 month base.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
The trade balance and preliminary Michigan sentiment report are out Friday, but the market will take its early cue from Dell and its earnings reported after hours. It was in line on earnings and light on revenues. It was down almost $3 after hours. When an aging growth company cannot make its numbers it is going to have to start going through some changes. If Dell struggles over the next couple of quarters as it moves into it prime consumer season then it will be clear Dell will need to cut some costs as other mature tech companies have had to do and are currently doing.
Dell put a lot of pressure on techs after hours and as noted above, NASDAQ is not necessarily holding the strongest hand for a rally. It is far from imploding but it has to overcome that high volume reversal from Wednesday with some stronger volume of its own as well as a strong move through the 10 day EMA and the mid-July highs (2193). Dell managed to drag many of the large cap techs lower after hours so NASDAQ will be challenged and could likely find itself confronting support at 2151 once more.
Stocks continue to perform throughout the market, and though Dell disappointed there were many solid earnings stories after hours that were rewarded as strongly as Dell was pelted. With many strong stocks still holding up well after their recent pullbacks, that will keep us looking to the upside as well; when those stocks can rise off of support on volume they present great buying opportunities as long as the overall market uptrend remains in place.
Thus how NASDAQ responds to Dell's results will be significant Friday as we watch for those stocks to make their moves. We would not be surprised to see SP600 and even NASDAQ test lower even without the Dell news; given the widespread impact after hours it would appear NASDAQ is going to make a another look toward 2151 before it can move higher.
Support and Resistance
NASDAQ: Closed at 2174.55
Resistance:
2178 is the January closing high and is trying to hold
The 10 day EMA at 2177.34
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:
The 18 day EMA at 2171
2163, the mid-December closing high has stalled NASDAQ recently.
2151, the early December closing high and highs from January 2004
The 50 day EMA at 2128
2100 was key resistance point, and a successful test sets it up as support.
S&P 500: Closed at 1237.81
Resistance:
The recent July highs at 1245.15
Price tops at 1265 from 1-28-99 and 2-99 & price bottoms from 12-20-00
Price top at 1272 from 1-6-99
Price tops at 1290 from 5-23-00
Price tops at 1364 from 1-29-01
Support:
The 10 day EMA at 1232.81
The 18 day EMA at 1230.68
The March 2005 high at 1229.11
March 2005 closing high at 1225
The June high at 1220
December high at 1217
The 50 day EMA at 1217
February intraday high at 1212.
1200 is some support
1196, the mid-January high and the early December peak in the left shoulder.
Dow: Closed at 10,685.89
Resistance:
10,720 is the high in the recent lateral move.
10,754 is the February high
10,868 is the December 2005 high.
10,985 is the March high
Support:
The June highs at 10,646 to 10,656
Price consolidation at 10,600
The 18 day EMA at 10,607
The April high at 10,557
The 50 day EMA at 10,546
The 200 day SMA at 10,520
The May high at 10,406
10,400, the bottom of the November/December range
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
August 09
Productivity-Preliminary, Q2 (08:30): 2.2% actual versus 2.0% expected and 3.2% prior (revised from 2.9%)
Wholesale Inventories, June (10:00): 0.7% actual versus 0.4% expected and 0.3% prior (revised from 0.1%)
FOMC announcement (2:15): 25 basis point rate hike. No change in statement as Fed wary of near term inflation and comfortable with 'well-contained' long term inflation.
August 10
Treasury Budget, July (2:00): -$52.8 actual versus -$56.7B expected and -$69.2B prior. The deficit is coming in smaller each month as tax receipts rise (spending is certainly not falling). Tax revenues rising, deficit falling, yet lower taxes. Once more the Laffer curve is proven.
August 11
Retail Sales, July (08:30): 1.8% actual versus 2.0% expected and 1.7% prior
Retail Sales ex-auto, July (08:30): 0.3% actual versus 0.6% expected and 0.9% prior (revised from 0.7%)
Initial Jobless Claims, 08/06 (08:30): 308K actual versus 315K expected and 314K prior (revised from 312K)
Business Inventories, June (10:00): 0.0% actual versus 0.1% expected and 0.1% prior
August 12
Export Prices ex-agriculture, July (08:30): -0.1% prior
Import Prices ex-oil, July (08:30): -0.4% prior
Trade Balance, June (08:30): -$57.2B expected and -$55.3B prior
Michigan Sentiment-Preliminary., August (09:45): 96.5 expected and 96.5 prior
End part 1 of 2
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us stock market
understanding the stock market
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