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us stock market, understanding the stock market
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8/22/05 Technical Traders Report
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SUMMARY:
- Modest gains off 50 day EMA as volume ticks higher.
- Yield curve basically flat as FOMC members to give speeches this week to justify the 'conundrum.'
- Hoping new home sales cool off.
- Stocks ready to try again Tuesday, once more with an economic news void.
Early bounce fades but indices hold 50 day EMA.
Stocks started the week with fresh strength as NASDAQ and SP500 rallied to next resistance. NASDAQ hit 2151 on the high while SP500 broke through the 18 day EMA on the early run. That was the peak, however, as the upside was used to sell into. Stocks turned over and sold through lunch, finally making a short double bottom in the early afternoon as both NASDAQ and SP500 slightly undercut their 50 day EMA. That brought in some covering and other buying and helped stocks recover into the close, posting modest (NASDAQ 0.3%, SP500 0.2%) to decent gains (SOX +1.2%, SP600 +0.6%).
Volume was higher on NASDAQ (12.45%) and a hair lower on NYSE, but both were still well below average. Indeed, it did not take much for NASDAQ to top the Friday volume that was the lowest in months. In short, there was no swell of buyers coming back in to rally stocks. They showed some life with the early rally and late rebound, but we don't want to confuse that with any real strength.
What it does show is stocks still holding near support in an attempt to consolidate and resume the rally. It also shows a pretty even split the past week between buyers and sellers as each time one appears to get the upper hand the other side comes in to neutralize the move. Classic tug of war between the bulls and the bears as stocks bide their time while the buyers and sellers determine which direction the market will take. The overall low volume and narrow trading range as stocks hold this support is a positive, but as we said over the weekend, until you see the break higher on strong trade it is just a pretty picture.
The leadership was pretty quiet Monday as housing continued to struggle and tries to form yet another base in a long string of bases. Energy is still under some pressure but is holding up as it sets up for another move. Other leadership stocks from across the market tested the rebound waters Monday with mixed success. Many rallied early, gave back some gains, but managed to hold some upside on the close. In short, leadership reflected the overall
On the other hand, semiconductors look particularly ready to lead higher with the SMH showing a stronger volume move off the 50 day EMA and SOX bouncing after never really testing the 50 day on this pullback. We could very well see the chips lead the next move higher, and they are cheating higher ahead of the rest of the market.
THE ECONOMY
Waiting to hear what Moskow and Greenspan have to say this week as the yield curve flattens.
A year ago the spread between the 2 year treasury and the 10 year treasury was 117 basis points. As of Monday it was 20 points; flat but better than the start of the day when it was 12 points. Bonds had a tougher session ahead of the Tuesday existing home sales the Wednesdays durable goods, so the spread improved. 12 points or 20, it is still a flat curve.
Moskow is speaking Wednesday and Greenspan Friday in their first appearances since the last rate hike. Any time they come back from a quiet period it is worth hearing what they have to say. Investors will be looking for some sign the Fed feels oil prices are impacting consumption more than pushing inflation (the national average for gasoline hit $2.61/gallon), but investors may be disappointed. The Fed tends to act quickly to stave off any potential inflation threat ("if you wait until you see it, it is too late") but is very slow to back off when it is clear that the economy is not as strong as the 'red hot' or 'white hot' monikers that are attached to it or certain sectors (e.g. housing). Thus any sign it is starting to factor that impact into the equation is a positive for stocks.
We are not holding our breath, and indeed may hear that old 'it is different this time' talk about the flat curve meaning something different as from other periods of flat curves. Flat is bad enough; as we noted last week, a study compiling all of the periods of flat yield curves indicates a flat curve would dry up GDP close to recession levels in 2006. An inverted yield curve is a place we don't even want to think about going as it leads to recessions in post-WWII periods. We may want to hear something positive, but history is not on our side. That is more in the realm of 'hope equals dope'.
Will existing home sales show a further softening in housing market?
Sales are expected to decline, but it is not a hefty drop. Indeed, most of the expected drops of late have been less than expected or were turned into gains as the housing market continues to show stamina. Even if the market continues its slow peak, it won't be enough to turn the Fed off of its path even though it is fairly apparent the Fed is focusing on the housing market as opposed to any purported inflation threat.
It is one of those situations where it would, as in most Fed hiking campaigns, take a major blow to deter the Fed from its course. That means you have to want to the economy to get really sick in order to get the Fed to relent for awhile to see just how hard energy prices are impacting the consumer. No one wants the economy to slow down sharply enough for the Fed to suddenly relent, but that is about the only way the Fed will relent. In short it is kind of a situation where you want to get to the bad news as fast as possible so you can get it behind you and move on.
THE MARKET
MARKET SENTIMENT
VIX: 13.42; 0
VXN: 15.94; -0.22
VXO: 12; -0.5
Put/Call Ratio (CBOE): 0.89; -0.16
Bulls versus Bears:
Bulls: 57.3%. Down slightly from 59.1% last week. Not a major change in the trend higher since the low was hit in May at 43.5%. Fourth 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: 22.5%. Recovering back above the 20% level considered bearish after a 19.3% last week. After one week below 20% it rebounded above that threshold. Hit a high for the year at 30% in early May.
NASDAQ
Stats: +5.85 points (+0.27%) to close at 2141.41
Volume: 1.398B (+12.45%). Decent jump in volume over Friday levels but still way, way below average, indicating there was no muscle to the modest upside. Showing some life but nothing definitive just yet.
Up Volume: 852M (+280M)
Down Volume: 485M (-167M)
A/D and Hi/Lo: Advancers led 1.4 to 1. Once more the upside breadth was modest but then again, the upside move was modest. If NASDAQ can put together a stronger price gain we need to see the upside breadth jump as well.
Previous Session: Advancers led 1.11 to 1
New Highs: 64 (+24)
New Lows: 46 (+7)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ broke below the 50 day EMA (2132) intraday and then rebounded for a modest gain on rising though still below average volume. On the high it tapped the 10 day EMA (2151) and price resistance at that same level. Decent action at the 50 day as NASDAQ continues its attempt to stem the selling and distribution over the past two weeks, consolidate at this key support, and then resume the rally. Good action for the consolidation, but it still has to show the upside break on a good increase in trade. We likely won't see volume surge as it is late summer, but a good jump of average or so volume would be good for the time of the year, i.e. just under two weeks from September the reputed worst month of the year for stocks. NASDAQ has headwinds still, but it is showing some resilience at key support. Again, it is just a pretty picture until it can show us something.
SOX (1.2%) is trying to show us something as it moved up and through the 18 day EMA (466) and holding that level on the close. It never even tapped the 50 day EMA (455.21), spending just a session near that level early last week. SOX could provide some real leadership in the days ahead, and we are watching it as a harbinger of a move for the rest of the market.
SP500/NYSE
Stats: +2.02 points (+0.17%) to close at 1221.73
NYSE Volume: 1.214B (-0.05%). NYSE volume held flat with Fridays extremely low levels, indicating no conviction on either side of the line. NYSE stocks rallied and then faded, and volume barely budged. Still low volume consolidation at the key 50 day EMA.
A/D and Hi/Lo: Advancers led 1.69 to 1. With the help of the small caps upside breadth was a bit better than the modest gain on SP500 would indicate.
Previous Session: Advancers led 1.25 to 1
New Highs: 81 (+22)
New Lows: 25 (-1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 showed another hammer doji at the 50 day EMA (1218.80) on low volume, trying to consolidate a la NASDAQ. It cleared the 18 day EMA (1226) on the high (1229) but could not hold the move given the lack of volume. As noted over the weekend, SP500 is holding the breakout, tapping the up trendline on the Monday low (1216) as well as holding right at the June closing highs (1217) on this test. It has tested the trend and held and is set up to bounce. As with NASDAQ, it has to show the move.
SP600 posted the second best gain (0.6%) and recaptured the 50 day EMA (341.44) as well. A modest victory as volume remained low and SP600 is still in a short head and shoulders pattern that formed the past 5 weeks. It has formed these periodically in its long advance and has continued higher; the last one was in February and March and SP600 broke down to the 200 day SMA (now at 325), and that is where a breakdown from this pattern, based upon its height, would likely wind up. A key sector in the move higher, the market still needs SP600. If the oil stocks recover this will help SP600 as many of the smaller oil and gas stocks reside in the small and mid-cap indices.
DJ30
Another day, another doji on below average volume at the 50 and 200 day SMA (10,551 and 10,537). DJ30 continues to consolidate along with the rest of the market, still working on that 6 week handle to its base that started back at the early March peak. Never made the breakout, and frankly it looks to be simply marking time while the other indices determine their direction. DJ30 escaped some anticipated pressure Monday as MRK another dollar intraday but then recovered for a 17 cent loss.
Stats: +10.66 points (+0.1%) to close at 10569.89
Volume: 215 million shares Monday versus 220 million shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Existing home sales are out at 10:00ET, and while they may induce some movement it is the new home sales that tend to gin things up as they supposedly impact more economic sectors than used home sales. Thus we are not expecting too much impact from that release unless there is a real drop that could be perceived as having an impact on Fed decision-making. As noted above, we are not holding our breath on that one.
Overall we liked what we saw Monday, all things considered. The market did not hold its moves, volume was low, and no real change occurred. Still the chips look better and the consolidation is holding, showing signs of life. Given the market is heading into a tough time of the year anyway and with oil and the Fed still to contend with, we want to see a solid upside resolution to really move into positions.
Support and Resistance
NASDAQ: Closed at 2141.41
Resistance:
2151, the early December closing high and highs from January 2004
The 18 day EMA at 2157
2163, the mid-December closing high
The May/July uptrend at 2170
2178 is the January closing high and is trying to hold
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 50 day EMA at 2132
2100 was key resistance on the way up.
S&P 500: Closed at 1221.73
Resistance:
March 2005 closing high at 1225
The 18 day EMA at 1226.34
The March 2005 high at 1229.11
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 June high at 1220
The 50 day EMA at 1218.81
December high at 1217
The April/July up trendline at 1216.50
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 10,569.89
Resistance:
The April high at 10,557
The 18 day EMA at 10,585
Price consolidation at 10,600
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:
The 50 day EMA at 10,551
The 200 day SMA at 10,537
The May high at 10,406
10,400, the bottom of the November/December range
10,250 held in the June and July lows.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
August 23
Existing Home Sales, July (10:00): 7.25M expected and 7.33M prior
August 24
Durable Goods Orders, July (08:30): -1.5% expected and 2.8% prior
New Home Sales, July (10:00): 1328K expected and 1374K prior
FOMC: Moskow speech.
August 25
Initial Jobless Claims, 08/20 (08:30): 315K expected and 316K prior
Help-Wanted Index, July (10:00): 38 expected and 38 prior
August 26
Michigan Sentiment-Rev., August (9:45): 92.5 expected and 92.7 prior
FOMC: Greenspan speech
End part 1 of 3
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us stock market
understanding the stock market
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