|
|
us stock market, trade stock
* * * *
10/17/05 Technical Traders Report
* * *
Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: KNOT; HOM
Trailing stops: None issued
Stop alerts: None issued
SUMMARY:
- Stocks provide third day of relief bounce with same so-so credentials.
- New York PMI falls when expected to rise as regional indices continue mixed performance.
- Fed is tighter on monetary policy than most think at these rate levels.
- Earnings starting to flow but will have to show a lot of strength to drive all stocks higher.
Sluggish start but stocks manage another day of modest recovery.
A new storm is forecast to enter the Gulf and while its forecast track at this stage is about as accurate as the college Bowl Championship Series rankings, with Katrina and Rita still fresh on minds, oil was higher and energy stocks were rallying Monday. Throw on top of that GM's poor earnings but important concessions on healthcare and a favorable Supreme Court ruling for tobacco companies and you had enough upside to overcome a weak New York PMI report and cobble together another upside session in stocks.
There was not a lot of demonstrable strength. Stocks started flat, bounced modestly, but then sold after that first half hour. They never threatened to breach near support, but were selling briskly over lunch before finding bottom and rebounding throughout the afternoon with the strongest move made in the last hour.
The gains were modest, all far less than 1%. That pushed them up near next resistance but never really threatened those levels. In short the indices moved up and down between near support and near resistance, unable to garner much price gain. Volume was scarce as well, coming in well below average on NASDAQ and NYSE. Breadth was thin (1.2:1); indeed once more NASDAQ 100 (+0.36%) outscored NASDAQ 100 (+0.26%), indicating the index move was dominated by large cap techs. That is often a classic indication of a relief move where the shorts cover the large cap names that were shorted on the preceding drop.
In sum, the market rallied for the third session, but stocks showed the same signs of a relief move, indeed even more so, as the gains tapered along with volume and breadth as NASDAQ, SP500 and SP600 approached near resistance. SP500 is at the 10 day EMA, and sometimes this acts as resistance for a stock or an index. When it does, i.e. stalls a move, that indicates the move is pretty weak.
After hours the next big earnings name, IBM, issued a strong earnings per share report (beat by $0.13) but revenues were light. Investors pushed it higher after hours, preferring the earnings reading to the revenues. NVLS in the chip equipment sector reported in line results, and they were not well received; NVLS turned a modest session gain to a $1.89 loss after hours. That dragged the chip equipment sector lower as well after the close. Thus the earnings front is likely to drive individual issues or sectors up or down, but it remains to be seen if earnings have the strength in the numbers and in the guidance to drive stocks higher on this bounce in the face of a hawkish Fed and energy prices that remain very high.
THE ECONOMY
New York manufacturing report posts second consecutive crappy result.
The 12.1 reading was much less than the 19.0 expected and the 15.58 in September (down from 17.0) that was much worse than anticipated at the time. Apparently times are not that great in the New York region for yet another month.
This is despite the September Chicago PMI and the national ISM that posted solid gains, contra to New York and the Philly Fed. As discussed when the Chicago and national reports came out, the NY and Philly reports were early in the month, on the heels of Katrina and then Rita. That was how we rationalized the divergence, but with NY slipping even further we will have to see how Philly comes in later this week to see if NY is the lonesome dove or if there is a dichotomy forming in the Fed regions.
This was the lowest level NY has posted in the past 5 months following a late spring/early summer slowdown. The recent drop may already be ending, however. New orders surged to 24.85 from 11.64. That more than the other sub-indices is considered a harbinger of things to come. As seen in the late spring reports, when new orders started to run higher the overall indices turned the corner fairly quickly. Again, this likely means that NY is already turning around.
What is unusual is that there must be something bothering NY region purchasing managers, something the data is not picking up. These PMI reports are basically business sentiment reports similar to the consumer sentiment reports. If it was the Katrina/Rita one-two punch you would expect the sentiment to rise after the initial jolt. It has not, and that makes the coming Philly report and indeed the Chicago report very important as they need to show NY is an outrider or aberration from the other regions.
New York seeing something else that bothers it?
One possibility is that the NY purchasing managers see the current monetary policy as tighter than widely believed. The Fed funds compared to the short term TIPS (Treasury Inflation Protected Securities) shows a level of monetary tightness approaching the levels in 2000 when the Fed drained away money from the economy. The Fed had been slowly increasing money supply for 13 weeks, but the market indicator, the FFR/TIPS spread, is showing money is just about as tight as when the market seized up and started to distribute ahead of the September 2000 top and the subsequent recession (which was after the real carnage had occurred when GDP fell from double digit growth to basically flat.
Of course that casts the recent heavy market distribution in a negative light, i.e., a forecast of economic slowing. As noted over the weekend, how the market responds after the current test of that selling will tell much of the story. We still expect another blow down from the market after this relief bounce. If the market can bottom in the vicinity of the prior low and then rebound and show us a strong follow through with some of the strong stocks still out in the lead, there is a good chance for a rally to the end of the year.
That is also similar to 2000. The first blow down was severe, but it was followed by a nice summer rally that showed very good price/volume action, i.e. fading on low volume and powering back up on strong trade. That led to the infamous July/September double top on NASDAQ and SP500 that started the really ugly selling after the return from Labor Day. In this instance we had a hard sell off, and if we get a typical rebound into year end, that will be similar to the 2000 summer rally. Then what happens in early 2006 becomes key. We are not too sanguine about that; the Fed is too hawkish and energy is still too high. There is only so much the economy can take from that combination, particularly after a 3 year bull run. If nothing changes the odds of economic troubles in 2006 are quite real.
There are things that can be done to help push the economy along such as real tax reform out of the 'blue ribbon' tax committee set to give Bush its advice sometime this week. Real tax reform would be the insertion of a flat tax or a national sales tax. That is not going to happen from what our sources tell us; instead we will see the same lack of creativity Congress applies to its decisions. True tax reform could unlock hundreds of billions of dollars in money still hiding in shelters as well as reduce the costs of the goods we purchase. The economic impacts would be truly amazing. Eliminating the AMT by reducing the home mortgage deduction and the amount of healthcare costs employers can deduct, what we hear is going to be proposed, is just business as usual and will have amazingly little impact on the economy or markets because it will have amazingly little impact on the individual taxpayer.
Another area that could help the economy and the market is the choice to replace Greenspan. At first we heard the administration was being creative as well, talking of Jack Kemp or Glenn Hubbard. As the administration's popularity has faded, apparently so has its willingness to think outside the box. Now we have talk of Bernanke, Kohn, Ferguson - - all Fed cronies who don't really believe in free markets and supply side economics that really control how the economy performs.
Thus unlike the Reagan administration that stuck to its principles regardless of popularity (both Reagan and Clinton were at equally low approval ratings with Bush at this time in their second terms), this administration appears ready to play it safe and go middle of the road and thus achieve no real change. Hell, even if it does that there are enough in Congress who will vote the other way for spite. Might as well go down in full flaming glory if you are going to go down. Moreover, the electorate will see you really want change even if Congress doesn't; that can be a powerful ally with still over 3 years left in the term.
THE MARKET
MARKET SENTIMENT
VIX: 14.67; -0.2. VIX fell again for the second session after hitting just over 17 last Thursday. That was close to the 18 level that led to the bottom in April. As noted last week, we can expect to see VIX jump back up as the market comes back to test once more.
VXN: 16.22; -0.01
VXO: 14.17; -0.43
Put/Call Ratio (CBOE): 0.87; -0.19. Falling below 1.0 on the close for just the second time in eight sessions.
Bulls versus Bears:
Bulls and bears showed the jumps we were looking for though bears did not quite hit the 30% level seen in early May just after the market bottomed. There is still the next leg lower, however, to run that up and even past that level. Getting where they need to be to form a bottom here.
Bulls: 45.8%. The second consecutive 3.7 point drop (49.5% last week) pushed bulls close to their May levels when the market embarked on its last run. Third down week in a row after three up weeks, and the drops have been larger than the gains. Bottomed in May at 43.5%.
Bears: 29.2%. Did not quite hit 30% as we wished for, but a solid 1.4 point gain (from 27.8%) got it within spitting distance. On this last trip lower it easily held above the 20% level that is considered bearish. Hit a high for the year at 30% in early May.
NASDAQ
Stats: +5.47 points (+0.26%) to close at 2070.3
Volume: 1.307B (-16.8%). Major drop off in volume, the second consecutive session below average, as NASDAQ continued the relief bounce. It will have to get something more to push it through the 200 day SMA. One thing is interesting with the volume between NASDAQ and NYSE. NYSE volume has outpaced NASDAQ the past two sessions and at other occasions during the past two weeks. That often coincides with the bottoming process as the more speculative index shows less trade, indicating much of the speculation is out of the market.
Up Volume: 750M (-403M)
Down Volume: 531M (+171M)
A/D and Hi/Lo: Decliners led 1.12 to 1. Very modest upside breadth to go along with the point gain. We note that NASDAQ 100 topped overall NASDAQ in point gain for the session. Combined with weak breadth that is often symptomatic of a relief bounce.
Previous Session: Advancers led 2.24 to 1
New Highs: 45 (-3)
New Lows: 89 (-84)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ continued higher but posted only a modest price gain on equally modest volume. NASDAQ rallied up near the 200 day SMA (2073.52) twice intraday, the last on the close; whether it would have continued higher if the session ran longer is problematical given the very low trade. We would love to see a move up to 2100 on this rebound to really set up the next test, but the declining volume and point gains as the index approaches the 200 day SMA makes that unlikely unless some strong outside force intervenes. IBM's earnings might help, but many view them as company specific. NVLS' disappointing report after hours was dragging the chip equipment makers lower. There needs to be some strong earnings indeed to push NASDAQ up through the 200 day and on toward strong resistance at 2100.
SOX (+0.46%) did not participate Friday, but it did lead the techs with its rather modest gain. It too is attempting to move higher, and it has the room to do it. First test is the 10 day EMA (449.74), but we want to see a run at the 50 day EMA (460) where there is more significant resistance. Even the 18 day EMA (455) would not be too bad.
SP500/NYSE
Stats: +3.53 points (+0.3%) to close at 1190.1
NYSE Volume: 1.518B (-10.98%). First below average volume since early September. Wrong time for volume to disappear, i.e. when the index is making a rebound from some high volume selling. Want to see SP500 make it to 1200, but as with NASDAQ it will need something to drive volume higher in a positive way to do so.
A/D and Hi/Lo: Advancers led 1.18 to 1. Very modest breadth. As with NASDAQ this is indicative of a relief move as opposed to strong across the board gains similar to what was shown Friday.
Previous Session: Advancers led 2.14 to 1
New Highs: 31 (+8)
New Lows: 142 (-104)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
SP500 twice tested the 10 day EMA (1192), closing below that level on lower, below average volume. The 10 day EMA is basically the lowest rung in the resistance ladder; if a stock or index fails at the 10 day EMA that is a sign it is quite weak and is likely setting up a downtrend run below the 10 and 18 day EMA. It is a classic set up: a bottom in August, a breach of that bottom and simultaneous breach of the 200 day SMA (1199) on high volume, and now a low volume rebound to the 10 day EMA. SP500 needs to battle through this level and on up to 1200 to make this current selling and bounce more in the vein of a bottoming process.
The small cap SP600 posted a modest gain, tapping the 200 day SMA (330.03) on the low and rebounding to close. It recaptured the 200 day with Fridays advance. It is now, similar to SP500, below the 10 day EMA 334.68) and price resistance at 335 as well; those are key levels we want to see it move through on this bounce on up to the 18 day EMA (338) and perhaps some price resistance at 340. Not the best action with volume or with the candlestick pattern, showing a looser hammer doji on the candlestick chart, and that can indicate a rebound is ending.
DJ30
DJ30 rallied up to the 18 day EMA (10,359), also moving on below average volume. Volume did rise, however, helped by surging trade in GM as it reported concessions regarding its healthcare package for employees. On the close DJ30 is testing right at the August and September intraday lows at 10,350. Needs to break through the 18 day EMA and up to the 50 day EMA (10,447) and even the 200 day SMA (10,512).
Stats: +60.76 points (+0.59%) to close at 10348.1
Volume: 242M shares Monday versus 239M shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
The PPI (Producers Price Index) is out Tuesday in somewhat of a reversal from the usual schedule (preceding the CPI). It is thus likely to be less of a factor though once more we will get some insight as to how much of the producer's prices are being passed along. We know that they are not, at least not much, but seeing just how much producers are absorbing gives insight as to whether the lack of bleed through into the CPI can last.
The real driver Tuesday will be earnings as the faucet of reports turns on full blast. IBM was up after hours with investors looking at the 13 cent beat over revenues light by a $100M. Investors were not overlooking NVLS' in line results, selling the stock off $1.89 and taking other chip equipment makers with it. We will see what the morning's earnings bring, but without any significantly strong tech earnings NASDAQ will be hard pressed to push on through the 200 day SMA.
Thus after three days of low volume relief bouncing off the hard selling, we are going to see how much is left in the upside tank on this move. As noted over the weekend, these relief bounces can be back and forth day to day as they make their advance. In April a sharp selloff occurred sandwiched between up sessions on two occasions. That action itself indicates the move is losing steam as does the low volume dojis below resistance seen Monday on the major indices.
With these rebound moves the top can take a few sessions; thus while the close Monday makes it look as if the bounce is over, it can take a few more sessions of up and down action to put in the top. In any event, with the indices showing such classic topping indications after the high volume blow down and lower volume rebound, we will be ready to look at the downside even as we look for those stocks that continue to hold up well and lead the market. As we have often noted, those left standing after a sell off are the ones that will lead. If the market can bottom and rebound, these stocks will be in position to rally first and historically they rally the best.
Support and Resistance
NASDAQ: Closed at 2070.30
Resistance:
The 200 day SMA at 2073.52
2100 was key resistance and support in the past
The 18 day EMA at 2094
The 50 day EMA at 2117.59
The 50 day SMA at 2132
2154 from January 2004 high
2178 is the January closing high
2187 is the September high.
2191.60, the January intraday high.
2192 is the mid-July high.
2220 is the August high
Support:
2050-51 is price resistance from spring and summer 2005 consolidations
2018 is the early April high.
The August 2004/April 2005 up trendline at 2015
S&P 500: Closed at 1190.10
Resistance:
The 10 day EMA at 1192
The 200 day SMA at 1199
1200 was solid price support
1210 held in late September on the close.
December 2004 high at 1219 and June high at 1220
The 50 day EMA at 1211
The 50 day SMA at 1217
March 2005 closing high at 1225 and intraday high at 1229.11
The September high at 1243 and the recent August high at 1246
Support:
1183 - 1184 from November 2004 highs and July 2005 intraday low and a high way back in July 1998
1178 is the August 2003/August 2004 up trendline.
1165 - 1155 from late 2001/early 2002 double top
Dow: Closed at 10,348.10
Resistance:
The 18 day EMA at 340
10,350 turned out to be support in the recent August and September pullbacks
The May high at 10,406 and 10,400, the bottom of the November/December range
The 50 day EMA at 10,447
The 200 day SMA at 10,512
Price consolidation at 10,600
The June highs at 10,646 to 10,656
10,720 is the high in the recent lateral move. This is the key resistance.
10,754 is the February high
10,868 is the December 2005 high.
10,985 is the March high
Support:
10,250 held in the June and July lows
10,200 from April.
10,175 from the July intraday low.
10,000 from the April low.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
October 17
NY Empire State Index, October (08:30): 12.1 actual versus 19.0 expected and 15.6 prior (revised from 17.0)
October 18
PPI, September (08:30): 1.2% expected and 0.6% prior
Core PPI, September (08:30): 0.2% expected and 0.0% prior
October 19
Housing Starts, September (08:30): 1975K expected and 2009K prior
Building Permits, September (08:30): 2075K expected and 2138K prior
Crude Inventories, 10/14 (10:30)
October 20
Initial Jobless Claims, 10/15 (08:30): 365K expected and 389K prior
Leading Indicators, September (10:00): -0.5% expected and -0.2% prior
Philadelphia Fed, October (12:00): 10.0 expected and 2.2 prior
End part 1 of 3
|
us stock market
trade stock
|
