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us stock market, understanding the stock market
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8/25/05 Technical Traders Report Update
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SUMMARY:
- Next to nothing rebound provides just a little relief.
- More retail data shows consumer is slowing.
- Jobless claims showing standard payroll data not telling the story in this cycle.
- Michigan sentiment to provide some insight this time as Greenspan gives 'thanks for the memories' speech.
Stocks higher but session hardly memorable.
Futures were up after the Thursday higher volume reversal that saw SP500 break below its up trendline, but we did not have a lot of faith that any rebound attempt would hold. To our surprise the modest early bounce survived an early test and a mid-session slump to post modest gains by the close. NASDAQ, SOX and SP600 managed to recover the 50 day EMA (though not by much), but SP500 never gave its former support at the trendline and 50 day EMA a challenge. The best it could do was hold a 0.2% gain. Better than a dive lower, but left the index in limbo, i.e. at a point where a bit more upside would put it in a much better position to play to the downside and not enough strength to buy into. Overall, however, SP500 remained definitely on the weak side with this meager response to the Wednesday breach of support.
The price moves were muted and so was volume and breadth. Volume slid back below average and well off the Wednesday pace. Breadth was positive, and at roughly 1.3:1 on NASDAQ and NYSE it matched the weak session once more. A weak bounce that shows no accumulation. A late bounce to session highs on SP500 was met with a sell program that looked ready to take the market negative. The sellers could not hold sway, however, and the last half hour saw a modest upside rebound. The failure of sellers to take it down when they had it in the crosshairs indicates that the relief bounce will try to continue Friday, taking SP500 closer to the support breach and giving us a better look at just how many guts are left in the upside investors.
Indeed, with NASDAQ, SOX, and SP600 managing a recovery of the 50 day EMA, they may be able to drag SP500 back across that line. The upside move would definitely have to strengthen to do it, and if Thursday is the best it can muster it is not going to happen. Maybe the strength will return and change the picture. For now, however, we anticipate SP500 will move higher and close the gap with that former support. If it runs out of gas at that level and NASDAQ falters as well, that will be time to button up positions on the bounce and then look to some downside positions.
THE ECONOMY
More retail data shows the recent softening is widespread across retail.
Data from various sectors of retail continue to show the impact of rising energy prices on the consumer, and as we all know, consumer spending makes up two-thirds of economic activity, blah, blah, blah. The consumer held up in the last recession while businesses went dormant after the Fed drained the money supply pool. Now the consumer is looking thinner in the face of gasoline prices approaching $3/gallon and natural gas prices that have doubled in the past year (that means the pressure will remain during the winter).
Another casual restaurant, OSI, announced that August same store sales were down 0.1%, more than expected. OSI had slid through the 200 day SMA last week in anticipation of weak sales. PetsMart (PETM) announced poor earnings and gapped sharply lower. The CEO said consumers were still buying food for their animals but they had stopped purchasing new beds and other accessories. We spend billions per year on pets and pet care; when money is tight, however, Spot and Fluffy have to do without the new chew toy or extra kibble.
In a similar vein but with a slight twist, Dollar General (DG) announced greater than expected earnings and rallied on higher volume. As with WMT and TGT, this discounter is seeing more sales as consumers seek lower priced goods. As with WMT, however, DG warned that high gasoline prices were starting to be a problem even with DG's good quarter. So once again we see consumer altering their consumption habits as they move to discounters, and we also see that gasoline is lowering their consumption as well. This is nothing new and is in the same theme as with WMT.
Jobless claims below 320K for the sixth straight week.
Jobless claims have hit and held a level that would typically indicate widespread job creation in the economy. Last week they were 315K, right on expectations and lower than the 319K the week before (revised up from 316K). At the same time the non-farm payroll numbers have never really caught fire. You can say they show an average of somewhere around 200K per month since the recovery started, but that does not look at the nature of how things have changed. For instance, since 9-11 and the creation of the Homeland Security department with its assigned duty to protect airports, etc, about 3.1 million jobs have been added as a result. Take away those jobs and non-farm payrolls are a wash at best.
Moreover, we bump people off unemployment benefit rolls after a certain period of time. They may or may not get a job, but as far as the government data is concerned they are presumed to enter the workforce again. They are not counted as a job, but they are no longer counted as not working. At the same time the household 'are you working?' survey shows unemployment near 5%, very good by historical standards. Now some will look at the jobless claims and non-farm payrolls data and say the 5% number underestimates the unemployed and put the number closer to 10%. That is wrong as well.
The household survey asks people if they are working; it does not differentiate if you are working for a public company, a private company, the 'man,' or whatever or whoever. That means that survey picks up all of those who have, by necessity, gone into business for themselves (independent contractors, new businesses, consultants, etc.). When we have this kind of upheaval after a boom where we see fundamental changes in the way companies operate and we see former growth companies move into mature income producing companies, it takes longer to generate the new jobs because the new up and coming businesses have to grow to the size where they start hiring a lot of workers. The big job generators of the last boom took awhile to be the job generating giants they became, and now they are not going to be adding many jobs. MSFT has a cash cow (Windows) that it milks for profits and won't see much change despite the new Vista version, and it also is now a games company. Dell makes a rather cheaply built commodity and makes its gains through obtaining more market share with PC's and to a lesser extent with printers, servers, and televisions. They are not adding jobs. They are not cutting them like the very mature industries, but they are not adding them.
The jobs data when applied generically to any recovery ignores that history shows recoveries following busts after major changes in the economy do not behave in the 'typical' manner. This economy is in a transition and thus most of the new jobs are ones the individual has a hand in creating. Call it necessity, ingenuity, or whatever, it is how our system manages to overcome extreme adversity and eventually recover to what most consider more 'normal' times. We are not there yet, and we are looking at a slowdown ahead, ushered in by high energy costs and the Fed acting to slow the economy at the wrong time yet again. That only prolongs the pain for many who have not recovered from the loss of jobs, retirement accounts, college accounts, etc. from the last bust.
THE MARKET
MARKET SENTIMENT
VIX: 13.73; -0.44
VXN: 15.35; -0.08
VXO: 12.61; -0.34
Put/Call Ratio (CBOE): 0.9; -0.02
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: +5.46 points (+0.26%) to close at 2134.37
Volume: 1.346B (-24.04%). Volume slumped back below average as NASDAQ posted a modest gain that barely recovered the 50 day EMA. But for SP500 moving below its trendline Thursday, we could look at this as a return to the consolidation at the 50 day EMA. That may indeed win out, but the low volume Thursday shows little upside conviction after the buyers had the market tossed back in their faces in the Wednesday reversal.
Up Volume: 741M (+41M)
Down Volume: 577M (-438M)
A/D and Hi/Lo: Advancers led 1.18 to 1. Very modest breadth once more. A/D has been equal on both sides of the line.
Previous Session: Decliners led 1.2 to 1
New Highs: 60 (-35)
New Lows: 38 (-5)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
Edged back above the 50 day EMA (2133), but with the low volume and modest gain it was hardly a major, significant move. Indeed, even with the Wednesday reversal from the early rally NASDAQ went right back to its quiet, lateral move. But for SP500's break below support this would still be an overall decent consolidation. Now it has to carry SP500 with it and try to hold that index from falling. It becomes a question of which is the strongest. When SP500 makes a further rebound that will show who has the strength.
SOX continues its lateral move as well, holding up near the 18 day EMA (466), retaking that level Thursday. It is holding up very well and still has leadership potential. It has easily held above its 50 day EMA (456.45) and is still exhibiting relative strength.
SP500/NYSE
Stats: +2.78 points (+0.23%) to close at 1212.37
NYSE Volume: 1.197B (-17.33%). Volume faded back to well below average levels on a modest rebound. No conviction in the upside. If volume remains low on a further bounce up toward the 50 day EMA and the up trendline, when it gets close to those levels it will struggle and likely fail unless NASDAQ and SOX take off to the upside and drag SP500 with them.
A/D and Hi/Lo: Advancers led 1.43 to 1. The small caps helped breadth improve, but a rally cannot live on breadth alone.
Previous Session: Decliners led 1.24 to 1
New Highs: 78 (-12)
New Lows: 31 (+3)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Hang onto your hats for this wild rebound from the Wednesday break lower. No kidding. Thursday my hat almost fell off as my head rolled back when I dozed off in front of the computer screens. The action was that slow and boring on SP500. It was a rebound, but it was the most modest of rebounds. Low volume, modest price moves, modest breadth, and not even a hint of a challenge to the 50 day EMA (1218) or the up trendline (1220) it fell through on Wednesday. If this is the best it can generate, a drop to 1200, the 200 day SMA at 1995, or on down to 1190. Still looking for a further test of the trendline or 50 day. If it does not improve its volume and leadership on that move it will likely fail.
The small cap SP600 recovered above the 50 day EMA (341.47) on that low NYSE volume, continuing the lateral move of the past 7 sessions. Outside of SP500 this looks like a nice, easy lateral move that is testing the run up the 10 and 18 day EMA in June and July. SP600 is doing precisely what we anticipated in late July and early August, i.e. coming back to the 50 day EMA and consolidating. What it does from here, however, depends upon SP500 and NASDAQ; this is not the kind of market where one group can head out and leave everything else behind.
DJ30
As with SP500, the most modest of recoveries as DJ30 rebounded from the sharp move lower Wednesday. Volume fell back below average as it bounces, showing there is no conviction in the blue chip bounce. It could not hold its range and broke lower through the 200 day SMA on rising volume. That is not an indication of strength, but Dow has been a 90 pound weakling during the market rally. Well, maybe just a 30 pound weakling.
Stats: +15.76 points (+0.15%) to close at 10450.63
Volume: 188 million shares Thursday versus 256 million shares Wednesday as DJ30 sold off.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
For once we are actually interested in what the Michigan sentiment survey has to say. It is the final for August, so as opposed to the preliminary report that is a waste of time, we will get some idea of what $2.61/gallon gasoline prices are doing to the consumer psyche. It is anticipated to hold the lower nineties, and that level is nowhere near the fifties that typically correlate to the kind of weak consumption that can trigger recessions. It can give us an idea of the trend, however. After sliding, sentiment picked up last month; we doubt it will hold that increase and will likely show a resumption of the softening trend.
Friday will also be Greenspan's last address as Fed chairman at the yearly Jackson Hole, invitation only conference. People are straining to hear what any Fed wannabes have to say as well as any hints about monetary policy Greenspan has to offer. Unless Greenspan decides to really have a good laugh and spill his guts you can expect nothing other than 'so long, its' been good to know you', in short talking about the privilege it has been to serve, the accomplishments achieved, and his view of the Fed in the future. Ironically, the future Fed will likely be little like the Greenspan Fed. Greenspan was too visible and commented on too many things, particularly in his last couple of years as he took his victory lap. The Fed got way off mandate, worrying about deficits, social programs, social security, energy policy, tax cuts, and it used old school inflation theory as it created new inflation indicators as the 'pressures on inflation' became primary over inflation itself. The Fed refuses to look at markets, commodities prices (spot or otherwise), gold prices, and other forward looking indications of just where the economy is heading as opposed to where it has been.
That said, we are not going to get much out of this meeting so the market is going to be on its own with some sentiment numbers and oil prices. After the lackluster upside move Thursday it is hard to anticipate a further move, but as noted Wednesday night, after a breach of a key area a stock or index will rebound to test that level. It does not always make it, but it typically gets close unless the index is very weak. With NASDAQ, SOX, and SP600 still holding up well at their support, SP500 is likely to make a further bump higher to get a bit closer to resistance.
If it gets close and holds up into the close it will be worth letting positions hold over the weekend. If it makes a run, gets close but then starts to fail, then we will start to button up some upside positions and look to the downside. Monday might bring a new surge of buying and leave us cold on some positions, but this market is not showing the same strength it did on the prior moves in the rally. The breadth started lagging on the last run, new highs fell off sharply, and we have since seen key leadership areas in housing, retail, and to some extent energy start to falter. It has not broken down across the board, but it is not the picture of health and there is no need to load the boat with new positions.
We will still look at good moves from solid leaders in position to move higher, but we will also be looking at some downside positions that are ready to fall if SP500 proves to be the stronger in its move lower. A little caution here is good, but we are not going to go into hibernation as we can make good money to the downside as well if the market decides it needs a September pullback prior to a year end rally.
Support and Resistance
NASDAQ: Closed at 2134.47
Resistance:
The 50 day EMA at 2133
2151, the early December closing high and highs from January 2004
The 18 day EMA at 2150
2163, the mid-December closing high
2178 is the January closing high and is trying to hold
The May/July uptrend at 2184
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:
2100 was key resistance on the way up.
2090 is the February and March interim highs
2073 is the 200 day SMA.
2050 to 2045 from May and June
S&P 500: Closed at 1212.37
Resistance:
The 50 day EMA at 1218
December high at 1219
The April/July up trendline at 1220
The June high at 1220
The 18 day EMA at 1223
March 2005 closing high at 1225 and intraday 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:
1200 is some support
1196, the mid-January high and the early December peak in the left shoulder.
The 200 day SMA at 1195
1183 - 1184 from November 2004 highs and July 2005 intraday low.
Dow: Closed at 10,450.63
Resistance:
10,500 is some price point resistance
The 200 day SMA at 10,538
The 50 day EMA at 10,542
The 18 day EMA at 10,551
The April high at 10,557
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 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): 7.16M actual versus 7.25M expected and 7.35M prior (revised from 7.33M)
August 24
Durable Goods Orders, July (08:30): -4.9 actual versus -1.5% expected and 1.9% prior (revised from 2.0%)
New Home Sales, July (10:00): +6.5% (1410K) actual versus 1328K expected and 1324K prior (revised from 1374K)
FOMC: Moskow speech.
August 25
Initial Jobless Claims, 08/20 (08:30): 315K actual versus 315K expected and 319K prior (revised from 316K)
Help-Wanted Index, July (10:00): 39 actual versus 38 expected and 38 prior. Indicates there may be more looking for help now.
August 26
Michigan Sentiment-Rev., August (9:45): 92.5 expected and 92.7 prior
FOMC: Greenspan speech
End part 1 of 2
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us stock market
understanding the stock market
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