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us stock market, trade stock
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12/19/05 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: None issued
Trailing stops: CWTR; NVDA; PSSI; FSL; BBBB; IDXX; CERS
Stop alerts: STMP; MCRS; FSL; SOX; GLW; MOT
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:
- Investors avoid year end rush, get their selling done early.
- Homebuilder sentiment falls harder: once the bloom is off winter comes quickly.
- Grinch-like action requires pruning positions in a test of the strongest.
- Still some pockets of strength for now.
End of last expiration for 2005 does not bring in new buyers.
No buyers were ready to chase any more performance in the last week before Christmas. After three weeks of setting up in a nice consolidation buyers did not send the indices to a breakout. Futures were strong and it had the look of a strong continuation rally after expiration week had stocks stumbling over each other. WMT reiterated its sales growth guidance (2% to 4%) and Circuit City upped its sales guidance to double digits. There was a proposed merger (FPL/CEG) as well, but chips were downgraded. That downgrade was a sign of things to come for the sector.
As has been the case during the past three weeks, the early blush faded. We were concerned about this in our pre-market alert; even though expiration was over, the market had to prove it could hold an early gain. Once more it proved it could not do that. NASDAQ, SOX and SP600, the three horsemen of the rally since October 2002, all struggled early, once more unable to provide any support to SP500. The large cap index on the other hand, was positive once more, trying to lead the rest of the market higher.
SP500 did an admirable job of hanging on, but in the afternoon even the large caps fell below the flat line. It did not help that the homebuilder's sentiment survey came out and showed another sharp decline in sentiment from the bubbly "tell me when interest rates get to 8%" comments from the summer. After such a long rally in the housing market it did not take nearly that much of an increase to shoot an arrow into the housing market's knee. When that news hit stocks really started to slide. NASDAQ slide 26 points from lunch while SP500 dipped 9 points, both closing right at the session lows.
Change in character?
Volume did not shoot higher, but it was not a light volume session as trade fell back to average levels. That lighter volume could be considered a silver lining, but it was still stronger than last Wednesday and Thursday, indicating the selling volume showed more strength.
Even if you want to call the volume light or lighter, the action of the market showed a character change. Yes it once again started high and finished lower intraday, something it has done off and on during the three week consolidation, but this time it gave back large chunks of real estate and broke through key levels as it sold. NASDAQ and SOX plowed through the 18 day EMA while SP600 thudded down to the 50 day EMA. These are important leaders in the market, and we were looking for them to provide new leader SP500 with some backup. Instead they pulled a New Orleans police move and abandoned post. That is a bit harsh, but you get the idea: they broke down, not up out of the consolidation.
Thus, not only were big buyers not chasing performance, they were selling stocks, getting a jump on the new year selling seen after the late 2004 run. Ho, ho, humbug. The Santa Clause rally appears to have gone south early. Meli kaliki maka.
THE ECONOMY
Homebuilder optimism continues to fall in the face of harsh reality.
Remember back to the spring and summer when the homebuilder CEO's would come on to the financial stations to discuss latest earnings and business in general? The optimism was gushing; demographics indicated another 10 years of boom and interest rates, well, don't even worry about those until they hit 8%.
Ten years have not passed by, not even 10 months. Since June, however, homebuilder sentiment has dropped 21%, losing another chunk in December, falling to 57 from 61 in November. It has not taken long for that bubbly optimism to go flat.
There are numbers to back it up, more hitting Monday. Months on the market rose to 4.5 from 4.3 over the past month. That may not seem like much, but in home sales that is a big jump. Further projected prices are supposed to fall from an 11.2% gain in 2005 to 4.9% in 2006 and then 1.6% in 2007. Believing these projections is done at one's own peril, but expectations are for a decline; not a precipitous decline, but a decline after years of gain.
Housing starts and permits are out Tuesday morning, more data for the housing market to chew on. It has finally become clear to the majority that the housing market is declining, and now the game for many is guessing how far and fast it will decline. The price projections indicate an orderly decline, but those can be mirrored against predictions of a sharp decline from 'bubble' proportions. That of course presupposes there is a bubble.
As we have said all along, there are areas that have overheated, but it is really the same as it always has been: some areas typically overheat (California, New York, Florida), new areas are cropping up that will do the same (Phoenix), while the majority of the markets rise and fall in more or less orderly fashion. Thus we anticipate harder falls in the typical areas and more orderly declines in the more stable markets.
THE MARKET
MARKET SENTIMENT
VIX: 11.38; +0.7
VXN: 14.23; +1.04
VXO: 10.66; +0.42
Put/Call Ratio (CBOE): 0.94; +0.12. Jumping back up, but not at the 1.0 level on the close and for enough closes to put an end to this downside action.
Bulls versus Bears:
Bulls: 58.8%. Just like the Energizer Bunny, bulls keep going; higher that is. A strong 2.6% from the 56.2% last week. That puts it well above the 55% level that is considered bearish. Three straight weeks bullishness has exceeded the 55% benchmark considered bearish. 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. The market is struggling to move higher, more leaders are balking, and the small caps are on a bumpy road. The rally needs to resume this week. Hit 44.8% on the low on this leg, just above the 43.5% low in May.
Bears: 21.6%. Fell slightly from 21.9% last week, and is being a bit stubborn, refusing to fall to 20% or below that is considered a bearish reading. Still, with bulls spiraling higher, the hold above 20% does not mean a whole lot. 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: -29.74 points (-1.32%) to close at 2222.74
Volume: 1.788B (-30.2%). Volume was lower but approached average. It was still lower than the trade last week, including the upside sessions, so it was not a dramatic jump in selling strength, but the sellers definitely were in control as the buyers abdicated the action.
Up Volume: 358M (-372M)
Down Volume: 1.394B (-398M). Not higher volume but a lot more downside trade. Again, the buyers simply left the building.
A/D and Hi/Lo: Decliners led 2.23 to 1. Big jump in downside breadth. Volume was lower but this is another indication the action was worse than the volume indicated.
Previous Session: Decliners led 1.2 to 1
New Highs: 93 (-8)
New Lows: 73 (+17)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ tried to hold the 18 day EMA (2244) intraday, but it failed miserably as the afternoon wore on. It is holding above the August high for now (2218) but there is a lot of downside momentum that is likely to take it back through that level for a test of the 50 day EMA (2203). If volume remains lighter it has a chance of holding that level and attempt another set up. That will have to prove itself. For now the consolidation broke down and NASDAQ has to find a new bottom and a new reason to rally.
SOX (-2.3%) was trying to lead but it made a lower high and then broke below the 18 day EMA (490.25) itself Monday, undercutting the lows from two weeks back and just about ready to fill the gap from the December 1 breakout move. At least it will fill the gap as it heads back below the August and September highs (486) and closes in on the 50 day EMA (475.86). As with NASDAQ, it will have to put the brakes on the move and then set back up for another try if it can.
SP500/NYSE
Stats: -7.4 points (-0.58%) to close at 1259.92
NYSE Volume: 1.657B (-20.51%). Volume was just below average but it was still higher than Wednesday and Thursday from last week, showing a bit of distribution. It was lower than the upside session prior to that; as with NASDAQ, the volume is a mixed picture: overall solid and not showing a lot of distribution, but there is some stronger selling and definitely a lack of buying strength heading toward Christmas.
A/D and Hi/Lo: Decliners led 2.53 to 1. With SP600 and SP400 taking the plunge, breadth was pretty ugly.
Previous Session: Decliners led 1.07 to 1
New Highs: 70 (-65)
New Lows: 108 (+13)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
The large caps did a better job of hanging in there than NASDAQ, SOX or SP600, checking up at the 18 day EMA (1259) on the close on lower volume (see above for a better volume discussion). SP500 was starting the week in a better position than NASDAQ, and thus it is holding up better after this selling which was much lighter than NASDAQ. Without the tech index, however, SP500 is going to find it hard to make headway though with its large pharma and medical stocks, the better performing sectors Monday, it can hold the line better. It has more downside room to play with and can drop to 1250ish and still hold its breakout. It remains in decent shape, but again, it does not have much help here.
SP600 (-1.32%) fared about as well as NASDAQ and SOX, diving below its 18 day EMA and flopping down to close at the 50 day EMA (350.37). It has fallen back into the 4 month base that started in August. After resuming some leadership again it is now going to have to struggle to hold the line at this support.
DJ30
DJ30 posted rather modest losses, turning back once more from the 10,950 level but holding fairly easily above the 18 day EMA (10,815). Volume was lower but still strong and above average, matching the upside volume last week. DJ30 has not failed at its attempt to break through the March 2005 highs as it continues setting up a handle to its 10 month double bottom with handle base.
Stats: -39.06 points (-0.36%) to close at 10836.53
Volume: 331M shares Monday versus 419M shares Friday. Lower but still strong volume as DJ30 tried higher but faded to test near support.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
More housing data (housing starts) and the PPI are out before the open, adding more data to the ongoing housing debate that has now devolved to just how much carnage the housing pullback will leave in its wake. The PPI is rather anticlimactic as the CPI was out last week. Thus not a lot of Fed data there. The key is the housing market as the Fed has targeted it, and just how hard the housing market pulls back will be one of the main driving factors as the Fed moves forward. We still have 25 BP in hikes for sure; the bubble issue is the March meeting, Bernanke's first.
Monday was not a surge in selling strength, but there was a change. Volume did not surge and thus it was more of a lack of buyers than a new run of sellers. Is that a distinction without a difference? It can be during the holidays as volume typically backs off anyway and the market can be moved around with more relative ease. If the buyers are not willing to come in and seek more upside then a fewer number of sellers can push stocks lower just as they did Monday.
As the breadth showed, the majority of stocks closed lower, and the key for each stock was whether it held near support or fell through. This test, while thus far on relatively light selling volume, is already separating the strong from the wannabes that rallied higher in the overall market move. You could see it Tuesday as the strong held above support nicely while many gave it up along with the indices. Pharma was stronger along with many in the medical sectors.
This breakdown had us closing positions rather liberally as investors got a jump start on the selling that many feared similar to early 2005. That has basically been a self-fulfilling prophecy, but regardless of the cause it is upon us. Whenever a good consolidation dives lower, there is damage done as the careful set up is tossed aside. It can always reverse its course, but it will have to show it pretty fast.
If it doesn't, just what is the market telling us? More concerns about just what the Fed is going to do to the economic expansion, what energy is going to do as well, and how the housing slowdown will hurt as well. Despite talk about how the Fed has learned its lesson, the yield curve is approaching flat and a flat curve suggests much slower economic growth. If rates keep holding their low course, a Bernanke hike will invert the curve. We don't think Bernanke will make the move to invert the curve whether or not he or the Fed believes it is caused by foreign interests buying US Treasuries, etc. The market was setting up to break higher in an affirmation of a stronger economy, but this uncertainty is undermining the upside move yet again.
With this move we are letting the stronger stocks hold up if they will, kind of weeding out the gene pool so to speak. Maybe this is just a quick shakeout but it will have to prove it; consequently we have been pretty liberal with closing positions the past several sessions given the inability to break higher and the struggle for many stocks to hold the line. There is still some upside strength and that is where we will look while we see if this selling was just quick shakeout.
Support and Resistance
NASDAQ: Closed at 2222.74
Resistance:
The 18 day EMA at 2244
The 10 day EMA at 2250
2251 is the January 2001 low
2264 from the June 2001 peak
2273 is the January 2001 closing low
2288 from December 2000 low.
2328 from the May 2001 peak
3015 is the December 2000 peak and the October 2000 low
Support:
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 2203
2178 is the January closing high
S&P 500: Closed at 1259.92
Resistance:
The 10 day EMA at 1264
1264 from the December 2000 lows is giving way.
The recent highs at 1275
1267 to 1273 is the May and May 2001 peaks (1315 intraday)
1324 to 1329 from the October 2000 lows.
Support:
The 18 day EMA at 1259
1250 may prove to be some psychological support.
The August high at 1246
The September high at 1243
The 50 day EMA at 1241
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 10,836.53
Resistance:
The 10 day EMA at 10,841
10,868 is the December 2004 high
10,952 - 10,965 from Q4 2000 and late November 2005
10,985 is the March high
11,176 - 11,186 from April 2000
Support:
The 18 day EMA at 10,816
10,754 is the February high
10,720 is the high in the recent lateral move
The 50 day EMA at 10,692
The June highs at 10,646 to 10,656
Price consolidation at 10,600
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
December 20
Housing Starts, November (08:30): 2020K expected and 2014K prior
Building Permits, November (08:30): 2092K expected and 2103K prior
PPI, November (08:30): -0.5% expected and 0.7% prior
Core PPI, November (08:30): 0.2% expected and -0.3% prior
December 21
GDP-Final, Q3 (08:30): 4.3% expected and 4.3% prior
Chain Deflator-Final, Q3 (08:30): 3.0% expected and 3.0% prior
Crude Inventories, 12/16 (10:30): 892K prior
December 22
Initial Jobless Claims, 12/17 (08:30): 325K expected and 329K prior
Personal Income, November (08:30): 0.3% expected and 0.4% prior
Personal Spending, November (08:30): 0.4% expected and 0.2% prior
Leading Economic Indicators, November (10:00): 0.4% expected and 0.9% prior
December 23
Durable Goods Orders, November (08:30): 1.1% expected and 3.4% prior
Michigan Sentiment-Rev., December (09:45): 89.0 expected and 88.7 prior
New Home Sales, November (10:00): 1300K expected and 1424K prior
End part 1 of 3
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