|
|
world stock market, us stock market
* * * *
8/13/05 Technical Traders Report
* * *
Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued. Still letting some solid stocks work higher for us.
Buy alerts: SYMC; NVDA; DRIV
Trailing stops: CRM; SPN
Stop alerts: CRM
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
Seminar Series Sale!
The new seminar series is scheduled to be ready soon, 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.
http://www.StockSeminarsOnline.com
Seminar Series Sale!
SUMMARY:
- Dell joins oil as another reason to sell.
- Foolish to ignore the bond yield curve regardless of views on a conundrum, short squeeze, etc.
- Homebuilder insiders selling as stock charts weaken.
- Leaders holding up for now, NASDAQ at trendline, but indices look top heavy.
Week of up and down action shows return of distribution as SP500, NASDAQ test key support.
Dell was light on revenues and on its guidance, and that gave investors just another excuse to unload some more shares in a week that saw up and down action day to day. The NYSE indices managed to hang onto a positive close, but tech stocks closed out the week lower as distribution returned, some earnings disappointments overshadowed the successes, questions arose about the consumer holding up, and oil prices that simply would not stop climbing.
Oil and its consumer impact become THE topic on financial stations.
Indeed oil is starting to spook the financial stations as Thursday and Friday a repeating topic was the impact of oil prices on the consumer. There were no doubt signs of this popping up with July retail sales lower even as energy costs made up a larger portion of those sales. That means spending habits altered during the month as more dollars went into the tank. For instance, studies are showing that 5% of the wage growth workers are experiencing is going to pay for higher energy costs. Of course more dollars went into automobiles as well as auto sales hit new records with the employee discounts. That means even more money going to burn energy.
Some were suggesting that the July data was an outrider, that is not representative of the real trend in retail sales as oil has been high for the entire year and June retail sales were strong. June sales were revised higher, but the past two months we have noted changes in where consumers are buying (more at Wal-Mart, less at Saks), and you cannot forget that oil price impacts are cumulative just like interest rate hikes. In other words sales can move along just fine, but once energy prices have stayed high long enough, when the choke point is hit it starts to slow consumption. With oil finally hitting over $3/gallon in spots around the country last week we appear to be nearing that choke point. We said back in May and June we thought gasoline would hit $3/gallon before the summer was out, and if the national average gets to $3/gallon we anticipate a significant shift in consumption.
As noted, we have discussed signs consumer habits are changing, and now that the topic is becoming mainstream with the spike in oil this week the current oil run is likely to be near its conclusion. It is not going to roll over and drop like a stone, but the inexorable climb last week even in the face of rising inventories cannot sustain itself just as a momentum stock cannot keep rallying higher and higher indefinitely. Any pullback will likely not be enough, however, to make a difference in the consumer outlook. It will remove the rising pulse of panic in the market, but it won't send oil back down to $50. Oil is being bid up on concerns there is not enough to handle world demand. When rumor hit last week that the largest Saudi oil field may have peaked in production, that only fueled the speculation. That is why oil prices are rising even as current supply far exceeds world usage. As China, India, and maybe even Europe enjoy economic gains, the future strains on supply are challenging. All of this uncertainty is driving price higher and higher.
Market sells Friday, but not as bad a rout as it could have been.
The market closed out the week on a down note, capping an up and down week, but it was not a rout on the session. NASDAQ and SP500 held at what has become somewhat important support levels and managed a modest rebound in the afternoon. They tried to give it all up in the last half hour, but the afternoon session was dominated by an almost impressive turnaround. Leaders held near support as well, and there were a few that were actually breaking higher on solid trade, ignoring the general market action.
Volume was a question mark as it came in mixed, higher on NASDAQ, lower on NYSE. Most of the higher trade can be attributed to Dell as it contributed 96.7 million shares, 8 times its average volume. We could do as the government and provide volume ex-Dell and skew the results, but the fact remains Dell disappointed and it and some other tech stocks were dumped. NYSE volume was lighter, and that was not bad at all; NYSE has not shown the same distribution as has NASDAQ, and the patterns of its indices are a tad better than NASDAQ. The question is whether they will be the leaders in holding the line or will NASDAQ be the leader in dragging everything down?
Friday may not have been a rout, but one day is not a market.
No Friday was not a route with the afternoon recovery and leadership holding up very well, but the market remains top heavy right now. Stocks rallied through July on some good earnings news but then started to struggle once the market was saturated with the results and focus shifted to further Fed rate hikes and rising oil prices. That is the old one-two punch we discussed as the most important factors influencing the market this year. Thus far the market has put them in the backseat each time they started to exert some stronger influence.
That is important to note. They both remain significant, but thus far economic growth has outpaced these factors and the market continues in its uptrend. This past week was reason for some concern but it was not clearly negative and it did not break its trend.
That said the market is top heavy. There was some distribution, there was a failure of internal strength as stocks reached higher (lower new highs, weakening breadth) compared to the highs hit in July. That leaves open the door for a test to the 50 day EMA on the major indices, led by the small caps that broke there strong uptrend from May to early August. Again that does not mean that the rally is over. Stocks are going to make deeper tests as they continue an overall uptrend. In short, a periodic 50 day EMA test is nothing out of the ordinary. Each time the market pulls back, however, everyone gets the heebie-jeebies and assumes the end has to be here. Nothing could be better for a continued upside move.
THE ECONOMY
Bond yield curve receiving lots of rationalization from the top down.
Greenspan was the first to float the 'conundrum' of low longer term rates in the face of Fed rate hikes and a stronger economy. A history lesson would answer the question. First, when economic expansion is led by solid supply that can meet or exceed demand, the economy grows without inflation. Second, with the Fed's track record of causing significant economic distress when it raises rates and attacks prosperity (8 of the 10 last rounds of rate hikes have resulted in recession), you can bet the bond market is dubious of the Fed's ability to 'get it right', engineer a 'soft landing,' or one of the other euphemisms the popular press likes to call Fed screw-ups that cost us all retirement accounts, college funds, and jobs.
There are other theories floating around about a short squeeze in US treasuries or a somewhat deflationary cycle caused by a Chinese and Indian boom to go along with Greenspan's theory about the trade deficit causing massive buying in US bonds (of course that has been ongoing for years).
Regardless of the theory or the actual reason, history suggests that you are foolish to ignore the consequences of a flat yield curve. We are not even talking about an inverted yield curve which has been a dead on indicator of recession, but simply a flat yield curve as a real problem for the economy.
The 10 year note was close to 4.5% recently but closed just under 4.3% to end the week. The Fed Funds Futures contract is currently pricing in a 4.25% Fed Funds rate in early January 2006. If the 10 year holds near this level that would of course be a basically flat yield curve. Even if the yield was higher, e.g. still at 4.5%, however, the impact upon the economy would be tremendous.
Based on historical trends, a curve of that nature would forecast 2.5% growth rates in 2006 and just 1.9% in 2007, well below trend and basically a stagnant economy. Combine this with the unrelentingly high prices in oil and you have baked in a recession by the end of 2006 and early 2007. If the curve flattens even more, i.e. the 10 year holds at current levels, the effect is more pronounced.
Given the history of the yield curve vis- -vis economic activity, it is almost amazing to us to hear the 'things are different this time' chatter from prominent sources such as the Fed chairman. As we found out in 2001 after the market and economy crashed, Greenspan's war against prosperity founded in part upon the 'wealth effect' was more based on hunches than fact. Greenspan shockingly admitted that the Fed was unsure if there was a wealth effect and asked for comment on the subject. Of course his Fed had helped usher in the technology bust and market crash that cost millions of hard working, responsible citizens their retirements.
Now, even before we have had a chance to really recover from that debacle, Greenspan is waging war on prosperity once more and basing most of it on a 'conundrum' as to why long rates remain low as the economy expands and the Fed pushes up short rates. Could it be that there are not really all of those 'pressures on inflation' out there that the Fed thinks are lurking in the shadows once more? The major threat of inflation lies in once again choking off investment in our R&D and capital investment in the US. That is where we will get inflation as supply dries up once more and demand surpasses it. Unfortunately, once more the Fed is basing its moves on another unproven theory. Indeed, this time it is even more egregious given that the relationship between the yield curve and the economy is very well documented in economic history unlike Greenspan's theory as to why things are different this time.
More housing market insights: insiders are selling.
The housing market has been strong and is strong, but it is also peaking as we have discussed for the past few months. More information indicating the same came out Friday.
One of the strongest proponents of the housing boom is the executives of the homebuilding companies. Recall the interviews on the financial stations of the CEO's over the past year as they predicted demand for homes increasing for the next ten years. CEO's are always negative at the bottoms and ebullient at the tops. Likely they remain giddy after housing weathered the recession without missing a beat as Americans put their money into houses as opposed to the stock market or other investments.
They are still very positive when they appear on the financial stations (both the TOL and PHM CEO's were on in the past month), yet when they were appearing on those shows in July they were also selling shares of their companies at a record pace. $333.5 million worth of insider selling in July alone.
Insider selling can occur for any number of reasons. With homebuilder stocks more than doubling in the past year on top of a tremendous 4.5 year run, taking some gain and diversifying is not a bad strategy. But, did all the executives get together at once and simply decide to sell? Not likely. While this is not a sure sign of anything nefarious, it is another piece of the bigger picture where the housing market peaks and slides to lower, more sustainable levels. There will be regions where prices collapse and there will be the newer investors that are caught holding the bad, but that happens every time the market peaks and indeed in just about every market, housing or otherwise.
Another technical indication to note is the weakness in many of the homebuilders charts. TOL, CTX, and KBH have all broken through the 50 day EMA on high volume and are struggling to hold on at those levels. That opens the door to some further downside, but we also have to remember that the homebuilders have undergone periodic corrections and built new bases on several occasions over the past four years. This could be another base building session. Of course they are also in late stage bases and at some point the run will end. This recent selling combined with some signs of softening is definitely something to watch.
THE MARKET
MARKET SENTIMENT
VIX: 12.74; +0.32
VXN: 15.63; -0.1
VXO: 12.07; +0.6
Put/Call Ratio (CBOE): 1.28; +0.34. Another close over 1.0, the third since this selling started. The overall put/call ratio reached 0.95%, closing in on 1.0% itself. Not quite there yet.
Bulls versus Bears:
Bulls: 59.1%. On a steady rise since hitting a low in May at 43.5%. Third consecutive week above the 55% level that is considered bearish. After the buyers are gone there is no one to keep coming in. Bulls bottomed in early May at 43.5%.
Bears: 19.3%. Sharp drop to below the 20% level that is considered the threshold for bearishness in the market. First week below 20% in six weeks. Hit a high for the year at 30% in early May.
NASDAQ
Stats: -17.65 points (-0.81%) to close at 2156.9
Volume: 1.663B (+3.55%). Volume rallied on the selling, the second distribution session of the week. Thus far that is all there has been since the last move higher peaked and there was a session of churning at the start of the month. Volume remained below average on the session, a modest plus.
Up Volume: 469M (-471M)
Down Volume: 1.145B (+506M)
A/D and Hi/Lo: Decliners led 1.77 to 1. Matched the upside breadth from Thursday; not a seriously weak session. Breadth did not confirm the last move higher as it was not as consistently strong as in the prior moves during this rally.
Previous Session: Advancers led 1.75 to 1
New Highs: 79 (-17)
New Lows: 40 (+2)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
Volume was up after gapping lower, but NASDAQ managed to rally back and slice off almost half of the losses for the session. Thus there was some life after the initial drop on the tech worries, and it showed up not only in the index but in many solid stocks that held support and even rallied. It is holding what is turning out to be a key support level at 2151 (mid-July interim peak, December 2004 peaks) as it tries to fight off rolling completely over from the early August peak. It is also holding the up trendline that started in late April when NASDAQ bottomed for the year. The Friday close kept NASDAQ right on top of that level. That said, NASDAQ has its issues, showing that distribution. It could still test to the 50 day EMA (2130) pretty easily.
SOX is struggling as well, struggling to hold the 460 level where it consolidated some in mid-July. It tapped it on the low and rebounded to cut its loss down to 1.3%. Chips suffered some as a result of Dell's earnings; more computers sold but not the high end jobs with the big chips in them. The 50 day EMA (453) is a quick run lower, and it looks as if it is heading that way.
SP500/NYSE
Stats: -7.42 points (-0.6%) to close at 1230.39
NYSE Volume: 1.304B (-11.08%). Volume backed off as the NYSE indices sold. Volume was above average early in the month as NYSE indices sold back, but has improved some afterwards, at least not distributing.
A/D and Hi/Lo: Decliners led 1.61 to 1. Good to see the declining breadth lower than the Thursday rally. The NYSE indices remain in a bit better shape internally than NASDAQ.
Previous Session: Advancers led 2.19 to 1
New Highs: 132 (-64)
New Lows: 30 (-3)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Fell right back down, giving back most of the Thursday gain, falling on lower, significantly lower volume. That means no dumping of these stocks to end the week, just general weakness as oil prices continue their climb. Has made a higher low here, but has not made a lower low yet after the late July/early August pullback. Tapped support at 1225 from the March high, the high for the year prior to the July breakout. Has an open door to the 50 day EMA (1218) and the up trendline from the April low (1212). Overall this is not a bad pattern at all.
SP600 (-0.9%) tested the recent pullback on the intraday low (343.95) and then rebounded to cut some of its losses. Still below the up trendline from the April low (351). Looks like a trip to the 50 day EMA (341.09) before it tries the up trendline again.
DJ30
Didn't take DJ30 long to retreat from the 10,700 level hit on the Wednesday high that marks the top of the current 5 week lateral range. Volume was lower as once more it heads down to the confluence of the 50 day EMA (10,548) and the 200 day SMA (10,523) where it has found support in this move. Not expecting much form DJ30; it has not led or followed. The most significant thing it did of late is fail to confirm the rally in the other indices. Still working on the handle of the base and will see how it handles the near moving averages.
Stats: -85.58 points (-0.8%) to close at 10600.31
Volume: 219 million shares Friday versus 234 million shares Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
MONDAY
Earnings season is winding down but not over, though at this stage its impact is limited; investors have seen the story, rallied, and now are looking elsewhere. The economic data may give us some more insight to the Fed with some regional manufacturing reports, the CPI, the PPI, and housing starts, though the Fed is not going to alter its course unless something drastic happens, and the data next week are not the type that will cause the Fed to rethink anything. Oil will continue on the hot burner as well as investors are talking a lot about what and when the impact will be on the consumer. As we have discussed, both have already shown up over the past two months.
With that economic backdrop and stocks faltering off the recent breakouts, there is some more downside set up, particularly on the small cap SP600. It is due for a test to the 50 day EMA after leading the market off the lows in April and May. NASDAQ is at a key point in the move, holding the up trendline off the April low and SP500 is not showing a whole lot of wear and tear as it has yet to make a lower low on this pullback. Leaders are holding up quite well overall. Sure there are some breaking down in the broad market, but overall they are holding support and some even breaking higher.
It is enough to keep the move alive even with the top heavy action in the market of late, but there are those two major factors still out there. The market is carrying more weight from rising oil prices and the economy is showing some effects as the consumer adjusts its habits. Oil prices are bad enough, but then you have the Fed viewing them as inflationary. That is a lot of the market to deal with and thus the pullback the past week as oil rose and the Fed met to raise rates again.
There is potential to rebound on NASDAQ (at the trendline) and SP600 (after a 50 day EMA test), and SP500 is not in that bad of shape. Nonetheless we know the cumulative impact rising, prolonged, and indeed record oil prices have on the economy, and the market will react before the economy reaches the choke point. Thus even while our positions are holding up nicely over near support we are going to keep a fairly short leash on them, particularly if we see volume picking up once more on the downside. We expect SP600 to make a test of the 50 day EMA before it is ready to rebound. NASDAQ could do the same, but don't want to see it break its trendline on the close.
As for new positions we are going to look at solid stocks that are holding near support; they will be ready to go as NASDAQ makes its rebound from its trendline if it will. We will also look at some downside positions on stocks that are failing after rebounding to their down trendline or have hit other resistance and are failing. That way we can be ready for what the market throws our way during this pullback. In short, play the upside cautiously, stick with the winners, let the market make its test, and as always, watch what the market is telling us and take what the market gives.
Support and Resistance
NASDAQ: Closed at 2156.90
Resistance:
2163, the mid-December closing high
The 18 day EMA at 2170
2178 is the January closing high and is trying to hold
The 10 day EMA at 2174
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:
2151, the early December closing high and highs from January 2004
The 50 day EMA at 2128
2100 was key resistance point.
S&P 500: Closed at 1230.39
Resistance:
The 18 day EMA at 1230.64
The 10 day EMA at 1232.38
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 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 1218
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 10,600.31
Resistance:
The June highs at 10,646 to 10,656
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:
Price consolidation at 10,600
The 18 day EMA at 10,607
The April high at 10,557
The 50 day EMA at 10,548
The 200 day SMA at 10,523
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 15
NY Empire State Index, August (08:30): 20.0 expected and 23.9 prior
August 16
CPI, July (08:30): 0.4% expected and 0.0% prior
Core CPI, July (08:30): 0.2% expected and 0.1% prior
Housing Starts, July (08:30): 2023K expected and 2004K prior
Building Permits, July (08:30): 2110K expected and 2132K prior
Industrial Production, July (09:15): 0.5% expected and 0.9% prior
Capacity Utilization, July (09:15): 80.3% expected and 80.0% prior
August 17
PPI, July (08:30): 0.5% expected and 0.0% prior
Core PPI, July (08:30): 0.1% expected and -0.1% prior
August 18
Initial Jobless Claims, 08/13 (08:30): 310K expected and 308K prior
Leading Economic Indicators, July (10:00): 0.2% expected and 0.9% prior
Philadelphia Fed, August (12:00): 14.5 expected and 9.6 prior
End part 1 of 3
|
world stock market
us stock market
|
