|
|
world stock market, us stock market
* * * *
10/26/05 Technical Traders Report
* * *
Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: ATK; GPN; BEAV; NTES; DRRX
Trailing stops: None issued
Stop alerts: KNOT
SUMMARY:
- Solid early start buoyed by higher oil inventories rolls over as indices again give up a move through resistance.
- Bush speech covers the waterfront, calls for fiscal responsibility as the pot calls the kettle black.
- Earnings landmines going off everywhere as finicky market wants things just right.
Bearish intraday action as stocks give up solid early moves.
The early action was once more solid. A softer open followed by a nice rally that carried stocks almost to lunch. Volume was running stronger, breadth was solid, and leaders were moving higher on solid volume as well. It did not hurt that oil inventories (+4.4M bbl) were better than expected for the second straight week.
NASDAQ and SP500 used the morning rally and solid volume to move through near resistance (the 50 day EMA and the 200 day SMA, respectively) and began challenging the next level (the 50 day SMA and the 50 day EMA, respectively). A strong break higher at 11:30ET looked to have set off the next leg to take out that resistance when suddenly the buying ended.
Oil was not moving higher to stall equities; indeed, it was still up after the inventory data was released and did not start to fall until midday when it dropped over $1/bbl. Even with that fall in energy stocks still could not find support in the afternoon session. NASDAQ and SP500 could not take out the next level of resistance, and indeed, gave up near resistance by the close as they sold off to new session lows in the last half hour.
That is bearish intraday action in and of itself. Add to it the volume that jumped back above average on NASDAQ rose on NYSE as well and you have a volume reversal at resistance, never a great technical indicator. Indeed it was the second consecutive day of modest distribution at these resistance levels, continuing the churn, i.e. where stocks run in place on higher volume as institutional investors play a game of institutional hot potato. In short, stocks were changing hands rapidly as no one wanted to be the one holding them last.
So, once again stocks tried to move through near resistance and once again they were thrown back with some rising trade. That shows early buyers (and there was stronger early volume) were eventually defeated by sellers. The inability to clear this resistance shows a definite struggle continues between the bulls and the bears, an ongoing struggle the past four weeks as the indices have tried to consolidate, put in a bottom, and move higher. The Wednesday action shows that fight is not over despite last week's follow through session.
NASDAQ looks to remain in decent shape but the problem looks to be SP500. Again many on the financial stations are calling for a large cap rally to lead the market into year end. As the index churns below the 200 day SMA and price resistance at 1200 and the 50 day EMA on rising volume, it certainly has a lot of work to do to be the leader. NASDAQ looks in better shape to lead, but it too is butting against resistance at the bottom of the August and September range, still appearing a long way from turning in a higher high since the August peak.
That butting against resistance is a problem in itself. While the indices put in a pretty solid follow through session a week back and rallied up to resistance since, they have been unable to make the break through to a higher high and thus end the recent downtrend. What you don't want to see is a continued battering at resistance. When that occurs the market grinds up the buyers, it losses momentum from the follow through, and once they are gone it falls again.
The Wednesday action was not great, but it does not represent a repeated failure to take out resistance. It was not in itself a rollover that is going to result in a failed bottoming attempt. It does leave NASDAQ et al set up for another test of near support before another try is made to take out resistance. The indices, despite the follow through and bounce, remain in a precarious position below key resistance, still in a downtrend of lower highs that started in August. They have to make the breakout after a modest test lower or the downtrend continues after this pause.
THE ECONOMY
Almost 5 years too late Bush calls for fiscal restraint.
A new prescription benefit for Medicare expected to cost hundreds of billions. A rubber stamp on a pork-laden, unconstitutional highway bill in order to curry political gain in other areas. A 'no amount of federal spending is too much' largesse in response to the Gulf storms. If Congress takes the lead from the executive, it is no wonder Congress is spending like crazy as well. Thank goodness the tax cuts were instituted and we have record levels of tax revenue coming in or else the deficit would balloon well past the 2.5% of GDP (right at historical levels) it is currently at. As many 'born again' budget cutters in Congress are noting, we don't have a revenue problem but a spending problem.
Well the sheriff rode into town Wednesday and declared it was time to cut the spending. This occurred because of a rebellion on the conservative right of the GOP. It took a threatened split of the party similar to 1992 when Bush I lost his base and lost the election. Bush called for across the board budget cuts, budget rescissions, free enterprise zones in the storm damaged areas, social security reform, tax reform, extension of the tax cuts - - basically his entire agenda.
We applaud the 'not yet begun to fight' attitude. Nothing worse when approval ratings go down than to go turtle and give up on all of your goals. Better to take it head on, show everyone you have conviction and backbone. You win some respect that way. May not win much of anything else, but you win respect and can carry on your business. Kind of like the Astros needing to win a couple of games at home even if they know the chances of winning the Series are slim.
Problem is, at this point Bush has the credibility of a used car salesman when it comes to touting fiscal discipline. With zero spending vetoes under his belt after 4.5 years in office, one wonders if he read that part of the Constitution and knows he can do just that. Thus it is going to be extremely difficult to get Congress to work with him on cuts. If he finds a program that is rife with documented, proved wasted and/or fraud there are many in Congress who would fight cutting the program or its budget simply because they can do so and get away with it given Bush's low approval rating. They would rather make political points than work on actually bettering the country's plight. That is one major reason we need to repeal the twenty-second amendment to the Constitution that limits presidential terms. As long as members of Congress who have been in power for 40 years know they can wait out a second term President there is no incentive to get to the bargaining table and compromise. If they know the President might just get elected yet again, they have to get to the table and work out a deal. The framers knew that and that is why they had no limits on terms for either branch. Either limit senate and house terms as well or remove the restriction on the President.
So, what Bush needs to do to get back the faith of his part and the voters is to issue an executive order mandating a 5% across the board budget cut. Every department has to do with 5% less immediately, BUT with NO diminution of services. In other words, they would have to become more efficient. This is what private companies do each year when budgets are reviewed; it becomes engrained as part of the corporate philosophy, at least in winning corporations. Nixon froze wages and prices. Reagan froze spending at existing levels and rescinded specific budgetary items. There is nothing stopping Bush from executing such an order. Why fight Congress over nickels and get nothing done? Take swift, decisive action in a time of need. You get results. Confidence is restored not only in the electorate but in the markets. Again, we don't have a revenue problem; we have a spending problem, and it is not with the consumer.
Howls will arise as to how unfair this is, how those receiving the tax cuts should have to pay more of their 'fair' share to cover the costs of Katrina, Rita, Wilma, etc. Most reading this report already are part (or are on their way to being part) of the 10% paying 85% of the income taxes collected. Who said that level of redistribution is fair? The same people who say it is fair for us to pay even more of the burden that Congress cannot seem to bring itself to reduce. They like to say we are all in this together, but the fact is that those receiving over 50% of the federal aide from tax receipts are pay no taxes at all, a number that grew under the Bush tax cuts. So it is fair to make those paying for those not paying taxes to pay even more for those not paying taxes? That is not the definition of 'fair' I learned in school. But that was also before they started teaching Ebonics in school.
Some people will also say that we have already decided that it is okay to have redistributionist policies in the US tax code and therefore we do not need to address tax reform or 'fairness' any more. Well, many of those people currently argue we should have no death penalty. Well, we have already decided as a society (by virtue of existing laws allowing criminals to be put to death) that the death penalty is acceptable. Thus, according to the 'we have already decided that' logic there should be no further discussion about the death penalty. I have yet to hear that one shot back in response to the 'already decided that' argument.
The fundamental problem with Congress is that many in the institution view the federal budget as a household budget. If you spend more than you make you go bankrupt because if you start to print money you get thrown in Leavenworth. In truth the Feds control the money supply and policy; they use that power to encourage certain behavior in citizens and businesses. The government can run a deficit and keep on going without a hitch because the US is the best risk the world has ever seen. It can run deficits indefinitely as long as it keeps its strong rule of law, maintains an open and free market approach that encourages investment and entrepreneurship, and thus keeps the economy growing. Many in Congress deny that the lower tax rates have once again produced more tax revenues than they 'cost.' With that mindset it is hard to make policy that really has impact. Thus the executive order mandating a 5% reduction in budget as a start. After that, another 5% the following year and so on.
THE MARKET
MARKET SENTIMENT
VIX: 14.59; +0.06
VXN: 15.87; +0.59
VXO: 14.19; +0.48
Put/Call Ratio (CBOE): 0.93; +0.05
Bulls versus Bears:
Last week 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: 45.3%. Dropped slightly from 45.8%. After to consecutive 3.7 point drops bullish sentiment is leveling off. Wanted it to put in another strong drop to take it down to the May level. If the volatility continues this week it may get there. Bottomed in May at 43.5%.
Bears: 29.5%. At least the bears moved higher though just a 0.3% rise. Getting close to that 30% hit during the April/May bottom. Hit a high for the year at 30% in early May.
NASDAQ
Stats: -9.4 points (-0.45%) to close at 2100.05
Volume: 1.894B (+15.11%). Volume jumped back above average after two sessions below. Trade was higher as NASDAQ rallied through the 50 day EMA and to the 50 day SMA. It did not diminish, however, as the index turned back down and closed negative. Not great action right below important resistance and the down trendline from August. The volume on the reversal shows the sellers overwhelmed the buyers at resistance, indicating the fight between buyers and sellers is not over and that the bottom attempt has to come up with some upside volume to survive.
Up Volume: 624M (-59M)
Down Volume: 1.237B (+314M)
A/D and Hi/Lo: Decliners led 1.48 to 1. Modest thanks to the index holding positive much of the morning and logging a nice gain before getting the big dips late.
Previous Session: Decliners led 1.43 to 1
New Highs: 78 (+4)
New Lows: 74 (+11)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ rallied through resistance at the 50 day EMA (2111) and up to the 50 day SMA (2122) on the intraday high. That, however, shut the move down and NASDAQ ended the session lower. A higher volume reversal just below resistance and showing a tombstone doji on the candlestick chart suggests a pullback ahead. The big issue for NASDAQ is whether it is just a pullback to the 10 or 18 day EMA (2090, 2092) or 200 day SMA at 2073 (not the preferable level but would do) to make a higher low, or if it dumps lower and continues the downtrend, still in search of a bottom. It is still in the game to make a break higher after that test, but it is also still in the downtrend and coming off a test of that trendline (2125). The picture does not look great, but it still has some intermal strength driving it.
SOX (-0.58%) continues its lateral move over the 200 day SMA (434), fading back from the recent highs and the 18 day EMA (447.69) that has thus far put a lid on the rebound attempt off this key support level. It has held in spite of INTC and in spite of TXN.
SP500/NYSE
Stats: -5.16 points (-0.43%) to close at 1191.38
NYSE Volume: 1.827B (+6.44%). Volume was up and above average for the second straight session as SP500 stumbled around at the 200 day SMA. It is churning at that level, part of that head butting discussed above, and that wears out the buyers if they cannot must the strength to punch through.
A/D and Hi/Lo: Decliners led 2.05 to 1. Downside breadth is starting to expand once again. Needs to hold the line.
Previous Session: Decliners led 1.55 to 1
New Highs: 62 (+6)
New Lows: 181 (+90)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
SP500 rallied to tap at the 50 day EMA (1206) before reversing and closing on the low and below the 200 day SMA (1199) once again. Managed to hold the 10 day EMA (1190) where there is some support from prior price highs and lows. This is some serious resistance for SP500 as the 200 day SMA and 50 day EMA are there along with price resistance at 1200. It will take an ice breaker to get through it, and thus far SP500 has not found the strength to punch through. Looks as if it has another test of the August 2003/August 2004 up trendline at 1180.50. SP500 looks to be the weak link aside from the speculation (as over the past three years) that it will lead the next move.
The small cap SP600 tapped the 50 day EMA (339.68) on the intraday high and then rolled back for a 0.80% loss. Similar to SP500 the 50 day EMA roughly marks the bottom of the July through September range before SP600 broke down hard in early October. If it holds here near the 10 day EMA (334.50) or even down at the 200 day SMA (330.72) it can still make another run at the resistance (it tested 325 on the October lows). As with SP500, it is going to have to pull one out of its hat to do that.
DJ30
DJ30 also rallied up to the 50 day EMA (10,419) on the intraday high before it gave back the move and more. Volume was up and average on the test higher and fade back, holding the 10 day EMA (10,330) on the low. Still sloshing around in its 6 month lateral move, trying to avoid another sell off.
Stats: -32.89 points (-0.32%) to close at 10344.98
Volume: 266M shares Wednesday versus 247M shares Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
Durable goods and new home sales may provide some market impetus Thursday, but earnings and bonds will remain in the forefront. Bonds have moved through resistance at 4.5% (10 year), and that opens the door for a run higher as investors speculate on Bernanke's reputed dovish nature toward inflation. Rising bond rates (regardless of Fed action) are spooking investors in addition to energy prices and the Fed.
This little bottom attempt has come to a crossroads. It has made a bona fide attempt to break higher, has met selling head on, and has, for now, lost. A good follow through and some good leadership is going to be tested one more time with a pullback after this test of resistance.
If the higher volume turn around Wednesday was not enough of an indication, the reaction to earnings is. It is like walking through a minefield each session as a stock is rewarded handsomely for much better than expected earnings, or is blown apart by in-line EPS, lowered guidance, or heaven forbid an out and out miss. That wildly divergent treatment is a sign of a market in major indecision with the buyers and sellers still landing body blows. Remember, when the market makes up its mind as to direction, little stocks it; any news is viewed as good or bad depending upon the direction. When ready to rally the market may key on one good story, but then it puts its head down and rallies regardless of what comes out. There were some signs of that last week, though modest, and now the earnings responses show major indecisiveness once more.
The market still has room for a test to make a higher low and try resistance again, but it is likely the last of its lives in this bottoming attempt. In short, it has to hold near support and make the break or face another leg lower and another attempt to set a bottom at a lower level.
Support and Resistance
NASDAQ: Closed at 2100.05
Resistance:
The 50 day EMA at 2111
The 50 day SMA at 2122
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:
2100 was key resistance and support in the past
The 18 day EMA at 2093 and the 10 day EMA at 2090 have held on the recent intraday lows.
The 200 day SMA at 2073
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 2020
S&P 500: Closed at 1191.38
Resistance:
The 200 day SMA at 1199
1200 was solid price support at one time
The 50 day EMA at 1206
1210 held in late September on the close.
The 50 day SMA at 1211
December 2004 high at 1219 and June high at 1220
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:
1190 from prior prices and the 10 day EMA (1190.53)
1183 - 1184 from November 2004 highs and July 2005 intraday low and a high way back in July 1998
1180.50 is the August 2003/August 2004 up trendline.
1165 - 1155 from late 2001/early 2002 double top
Dow: Closed at 10,344.98
Resistance:
The May high at 10,406 and 10,400, the bottom of the November/December range
The 50 day EMA at 10,419
The 200 day SMA at 10,502
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:
10,350 turned out to be support in the recent August and September pullbacks
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 25
Existing Home Sales, September (10:00): 7.28M actual versus 7.20M expected and 7.28M prior (revised from 7.29M)
Consumer Confidence, October (10:00): 85.0 actual versus 88.0 expected and 87.5 prior (revised from 86.6)
October 26
Crude Inventories, 10/21 (10:30): 4414K actual versus 5555K prior
October 27
Durable Goods Orders, September (08:30): -1.2% expected and 3.4% prior
Initial Jobless Claims, 10/22 (08:30): 340K expected and 355K prior
Help-Wanted Index, September (10:00): 36 expected and 35 prior
New Home Sales, September (10:00): 1250K expected and 1237K prior
October 28
GDP-Adv., Q3 (08:30): 3.6% expected and 3.3% prior
Chain Deflator-Adv., Q3 (08:30): 2.8% expected and 2.6% prior
Employment Cost Index, Q3 (08:30): 0.8% expected and 0.7% prior
Michigan Sentiment-Rev., October (09:45): 76.0 expected and 75.4 prior
End part 1 of 3
|
world stock market
us stock market
|
