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option trading, day trading
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12/08/05 Technical Traders Report Update
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: NBR (bonus)
Trailing stops: None issued
Stop alerts: None issued
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 SSR alert service you can sign up at the following link:
http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- Market action seemed worse than it was.
- House passes extension of dividend and capital gains tax cuts amid usual sniping.
- TXN's update was better than expected and stocks sold. INTC's is worse than expected and stocks . . .
Stocks trade down again, but hold support and showing better internal action.
Stocks started soft and managed a midmorning to lunch bounce into positive territory, but as with other upside moves this week the gains did not last. Oil was up $1.45, natural gas inventories were down less than expected but gas prices jumped $0.78 nonetheless, TXN's report was good but the reception was not, and INTC was likely not going to meet high expectations either.
Thus, as lunch got started so did the selling. It went on unabated for 2.5 hours. Volume was running a bit higher as the selling progressed. By 2:30ET NASDAQ and SP500 were trading at the 18 day EMA. That is where they found bottom for the session. There was no massive rebound, but a steady move higher during the last 1.5 hours of the session that recouped some of the losses.
Volume jumped significantly as the market bottomed and bounced late. Breadth had been running slightly negative, but by the close, even with NASDAQ, SP500 and DJ30 negative, breadth turned positive. Similar to December 2004, the large cap indices have tested the 18 day EMA in December during the year end run. Price/volume action remains good, and indeed the volume action Thursday falls into that category: test of the 18 day EMA support and a rebound off that level on rising volume. That shows buyers stepping in at that level and buying.
That is more positive action on a day that appeared to be just another session of selling as seen of late. It was no reversal, but an improvement in action from the recent bearish intraday action of starting higher and closing lower. Breadth was never really negative on those sessions and price/volume action, as noted, stayed positive. Now the internals are improving even from those mild levels even as the indices test and rebound from near support. It has yet to show the rebound, but it is also showing a rather decent pullback to set up the next rebound.
There are negatives. Thursday NASDAQ undercut the prior Thursday's rally resumption, effectively nullifying that move. There have been breakdowns in some solid stocks this week as they crashed through near support on strong volume. TXN provided a good update but was beaten back. Now INTC has truly disappointed with its meek upward shift in revenues. The market is set up to rebound but it will have to follow through in the face of negative news. That is nothing unusual; the market often makes its moves when things appear bad.
THE ECONOMY
House extends cap gains, dividend tax cuts through 2008 but Senate is hardly on board.
Some democrats joined republicans Thursday and voted to extend the tax cuts on dividends and capital gains. Watching the debate was an interesting display in sausage making, a process that has not changed in over 200 years. Representative after representative took the podium to showcase (showboat?) as to why the idea was good or bad. There was more than one Christmas stocking with a lump of coal for the poor versus a stuffed stocking for the rich. There was plenty of play money tossed around representing what the 'rich' were getting out of the bill (maybe it was real money; with Congress it is hard to tell as they treat real money as if it were play money).
None, however, argued that the reduction in capital gains and dividend taxes did not help the economy surge and finally pull the economy out of recession. Instead the arguments centered around cuts in Medicare, welfare, and other public programs. In the big picture the tax cuts are miniscule when compared to the massive entitlement budgets certain representatives framed as being bled dry by the tax cuts. And most certainly they were not going to offer that just after the tax cuts were passed the market surged 20% and that shortly thereafter in the second half of 2003 the economy exploded higher. That creates new investment, new businesses, new jobs - - basically prosperity. They also were certainly not going to admit that 91 million Americans now own stocks or that the tax cuts directly benefit 58% of those people making $100K or less because they do indeed hold stocks (not to mention the general prosperity benefits the tax cuts helped generate).
Beyond the rich versus poor debate, it is still amazing to us that no one in Congress will stand up and say we need to go on a fraud and waste hunt before we talk about raising taxes or as some would say, rescinding prior tax cuts (similar to that 'previously owned' used car). Indeed, we hear brilliant comments from Tom DeLay about how there is no fat to be cut. Nobody, but nobody in America believes that is the case. I lived in Austin for 20 years, and while I agree that Ronnie Earle is a biased, stop at nothing, stoop to any level partisan, comments like that from DeLay show the two are evenly matched in their legal fights.
There is so much waste in government that a 5% across the board cut could be implemented without any diminution in services and foster a nice increase in efficiency. A 10% cut would be even better and still give us no drop off in service and even more efficiency. No one has the guts to seriously suggest it or even discuss it. Thus we have these bogus debates about 'rich versus poor' when we should be debating how to promote government efficiency such as sun-setting all federal programs and requiring efficiency and effectiveness reports and then congressional reauthorization if warranted. Those are hard issues and it would require Congress to be accountable. Won't happen.
THE MARKET
MARKET SENTIMENT
A little worry is creeping into the market as comments that the year end rally is running dry are showing up on the financial stations and with floor traders.
VIX: 12.21; +0.03
VXN: 15.44; +0.46
VXO: 12.02; +0.18
Put/Call Ratio (CBOE): 1; +0.21. Rose to the 1 level that starts to indicate a bit of speculation in the option market.
Bulls versus Bears:
Bulls: 55.8%. Well, bulls crossed over the 55% level considered bearish (up from 53.6% last week). The theory behind this reading is that when too many investors are bullish, then most of the money is in the market and it has a hard time sustaining itself. For now the nuts and bolts are solid (price/volume action, leadership), but we need to watch closely; if they deteriorate the combination of the sentiment and technical deterioration would be a sign to start paring back. Hit 44.8% on the low on this leg, just above the 43.5% low in May.
Bears: 21.1%. Holding just over the 20% level considered bearish. Quite a drop from the 23.2% the prior week. With bulls jumping if bears fade further that would be even a stronger indication and make any technical deterioration dangerous for the rally. It hit 29.2% on the high this cycle, just below the 30% level hit in May when the market bottomed at that time as well.
NASDAQ
Stats: -5.55 points (-0.25%) to close at 2246.46
Volume: 1.988B (+11.25%). Volume jumped well above average as NASDAQ tapped the 18 day EMA on the low and rebounded, cutting 13 points off its losses. Volume was running slightly higher into early afternoon during the selling, but then picked up more strength as stocks rebounded off NASDAQ 18 day EMA. That is an indication that buyers entered at the 18 day EMA.
Up Volume: 787M (+106M)
Down Volume: 1.179B (+112M)
A/D and Hi/Lo: Advancers led 1.05 to 1. NASDAQ finished lower, but breadth was just modestly lower. The late bounce pushed it positive even though NASDAQ could not make it back to the green. This is good internal action.
Previous Session: Decliners led 1.63 to 1
New Highs: 106 (0)
New Lows: 38 (-9)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ gained just under 10 points on its high it reached right at the start of lunch but then swung 27 points to drop to the 18 day EMA (2234). Volume was slightly higher than Wednesday at that point. NASDAQ found support at that level and rebounded, recapturing more than twice the ground it lost on the close. Volume rallied as NASDAQ rebounded. Breadth turned positive even though NASDAQ could not. This combination of indicators shows internal strength a casual glance overlooks. NASDAQ has set up for a continued rally, but it is going to have to overcome the INTC disappointment to make that happen. We could see another test of the 18 day EMA early on and then we will see how strong NASDAQ actually his here at this near support level.
SOX (-1.7%) was the real disappointment on the session as it was unable to continue the breakout move. It fell through the 10 day EMA (490.87), but similar to the other indices it tapped the 18 day EMA (483) and rebounded to the close. That move accomplished an important event even if we wanted to see SOX rebound from the Wednesday close. The move closed the gap created the first session of December and SOX was already rebounding by the session close. The gap is closed, it held next support, it held the breakout, and it is now set up to continue higher. INTC will be a major challenge; SOX has closed the gap and tested, but the rest of the stocks will have to carry INTC's water if SOX is going to rebound near term.
SP500/NYSE
Stats: -1.53 points (-0.12%) to close at 1255.84
NYSE Volume: 1.659B (+5.07%). Volume was up but still below average as the NYSE indices tested or tested toward their 18 day EMA and rebounded. Very similar action to NASDAQ, and we view it as similarly positive.
A/D and Hi/Lo: Advancers led 1.27 to 1. SP600 and SP400 turned in modest gains as they rebounded from tests toward next support as well. That helped turn breadth back to positive even as SP500 was negative.
Previous Session: Decliners led 1.68 to 1
New Highs: 138 (+23)
New Lows: 79 (-3)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
SP500 tapped the 18 day EMA (1251) on the low and rebounded on rising though still below average volume. That matched the late November test of 1250 that led to a rebound (last Thursday). SP500 remains set up to continue higher after a two week lateral move that as with NASDAQ shows good price/volume action and good technicals such as holding support and good internals. It too has to survive INTC and its oft-plagued mid-quarter update (it never can seem to satisfy anyone because it is so darn conservative in these updates).
SP600 (+0.26%) undercut the 10 day EMA (357) but held above the 18 day EMA (354) and rebounded to hold the 10 day and post a positive close. It is trying to make a higher low at this near support and use that to break to another new all-time closing high with a move over 360.71.
DJ30
The blue chips continue their struggles, falling through the 18 day EMA (10,785) and some price support at 10,800. Volume rose slightly but was still below average. This drop looks likely to take DJ30 down to 10,700, the top of its range that held it in prison June through November. That is where it needs to hold. Some are saying the Dow is going to lead the rest of the market lower. We do not. The Dow does not lead higher and it is not going to lead lower. It is the equivalent of the market's appendix.
Stats: -55.79 points (-0.52%) to close at 10755.12
Volume: 253M shares Thursday versus 243M shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
The market had to struggle with surging natural gas prices and oil back above $60/bbl. Friday it will have the December preliminary Michigan sentiment report as well as Intel and its weaker than expected revenue guidance and capital spending guidance (cap spending is now projected at less then the previously indicated mid-point level). That was pressuring chips after hours, and chips have been important to this recent resurgence in the market. That could push the indices back to their 18 day EMA for another test Friday after they had done so Thursday and rebounded nicely, demonstrating an appetite to continue the advance.
The Intel news will show us how much strength is left in this move; it will have a chance to overcome adversity that is for certain. As noted, the market has not sold on volume, has held near support and rebounded on volume, is showing good internals even in downside sessions, and still has solid leadership. Some leaders have given up support, something that has just started. Most are holding support along with the indices and it still looks like a good test setting up for another leg to the year end rally. We are watching the breakdowns, and if we see a stocks violate support and not recover quickly it should be closed. The market still shows plenty of promise but we don't want to let a play get out of hand late in the year.
Support and Resistance
NASDAQ: Closed at 2246.46
Resistance:
2251 is the January 2001 low (2273 is the closing low)
2264 from the June 2001 peak
2288 from December 2000 low.
2328 from the May 2001 peak
3015 is the December 2000 peak and the October 2000 low
Support:
The 10 day EMA at 2249
The 18 day EMA at 2234
2220 is the August high
2205 was intraday resistance last week
2192 from the January intraday high and the mid-July high.
2187 is the September high.
The 50 day EMA at 2186
2178 is the January closing high
S&P 500: Closed at 1255.84
Resistance:
The 10 day EMA at 1257.70 could be some resistance but likely not on any rebound
1264 from the December 2000 lows.
1267 to 1273 is the May and May 2001 peaks (1315 intraday)
1324 to 1329 from the October 2000 lows.
Support:
1250 may prove to be some psychological support.
The 18 day EMA at 1251
The August high at 1246
The September high at 1243
The 50 day EMA at 1233
March 2005 closing high at 1225 and intraday high at 1229.11
December 2004 high at 1219 and June high at 1220
1210 held in late September on the close.
Dow: Closed at 10,755.12
Resistance:
The 18 day EMA at 10,785
The 10 day EMA at 10,823
10,868 is the December 2004 high
10,952 - 10,965 from Q4 2000
10,985 is the March high
11,176 - 11,186 from April 2000
Support:
10,754 is the February high
10,720 is the high in the recent lateral move
The June highs at 10,646 to 10,656
The 50 day EMA at 10,645
Price consolidation at 10,600
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
December 05
ISM Services, November (10:00): 58.5 actual versus 59.0 expected and 60.0 prior
December 06
Productivity-Rev., Q3 (08:30): 4.7% actual versus 4.5% expected and 4.1% prior
Factory Orders, October (10:00): 2.2% actual versus 2.2% expected and -1.4% prior (revised from -1.7%)
December 07
Crude Inventories, 12/2 (10:30): 2720K actual and -4188K prior
Consumer Credit, October (15:00): -7.2B actual versus $5.0B expected and -$0.1B prior
December 08
Initial Jobless Claims, 12/03 (08:30): 327K actual versus 318K expected and 320K prior
December 09
Michigan Sentiment-Prelim., December (09:45): 85.0 expected and 81.6 prior
Wholesale Inventories, October (10:00): 0.5% expected and 0.6% prior
End part 1 of 2
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option trading
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