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01/10/06 Technical Traders Report Update
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Technical Traders Report Subscribers:
Full report issues Wednesday.
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: EXPE; GS; MER
Trailing stops: None issued
Stop alerts: LF
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:
- Volatile session, but market keeps coming back as it consolidates in place.
- Wholesale inventories post second gain.
- Weekly chain store sales rise as gift card redemption begins.
- Watching for next rotation as market prepares for a breather.
Market overcomes early bad news, rallies to close.
Investors received some early down news with Alcoa reporting poor earnings and revenues, weak overseas action, Soros bad-mouthing the US (must have shorted the dollar again), and rising energy costs as Iran reopened some nuclear plants. All in all it was not horrid news, but the market was ready to pause after a week of gains, and this was a good excuse to pull the plug on some positions.
It did not dive lower, however. The market gapped down, but found a floor and rebounded. There was strength in retail and financials. Stocks sold, then rebounded again, this second time on some really bullish talk from Apple Computer at the Mac World conference (huge sales of the iPod at 14M units versus the 11M thought). That helped spark the market into a comeback, led by SP600, SOX, and though it was negative, NASDAQ (it staged a 13 point run in the last hour). It was not a roar back up to positive territory, but a steady climb that cut the losses. One last attempt to sell in the early afternoon was met with yet another upside buying round, and that rallied stocks into the close. At the bell only SP500 and DJ30 were lower as the small caps and semiconductors once again led the market to gains.
Definitely volatile action with some profit taking and then buyers moving in on each dip. That shows continued high interest in stocks, but it also shows the move has lost some momentum for now, not unusual given the run. The volatility can mean a further pullback is ahead, or it can mean that the indices are going to continue this up and down action for a few sessions and then resume the move. We have seen this 'internal consolidation' in prior instances of excellent market strength. The market rallies hard and needs to rest and digest some gains, but each time it dips some buyers enter. Not enough to drive it out of the range, but enough to hold the position. That is a sign of strength, i.e. a stingy market, as sellers don't want to give up their shares.
We can still see leaders pull back to near support; that is normal. The indices can do the same after this up and down session that indicates the buyers and sellers becoming more evenly matched as the upside loses some steam. Volatility after a move up or down is always a signal of some wavering in the move and a potential change ahead. We will see how strong the market is by how far it fades and what the volume levels are. Thus far the action has been excellent and we anticipate the pullback or lateral consolidation will be the same, at least based on what the market has shown thus far. That will reload the gun and then stocks can make another run.
All in all it was a constructive session. Stocks faced some adversity but did not cave. Indeed they fought back all session and even managed a plurality of positive closes. The A/D line went from negative to positive on just so-so gains. Another sign of internal strength even as the market encounters some selling. Stocks need a breather and the Tuesday action started the process. Now we be patient and let the market and stocks set up for the next move.
THE ECONOMY
Wholesale inventories rise while sales fall.
For the first time in months sales were less than inventory gains (-0.7% sales, +0.4% inventories). The main culprit in the sales drop was the fall in gasoline prices after averaging a 1.7% gain for the prior three months. That pushed the inventory to sales ratio up to 1.15 months, coming off a record low 1.14 months.
Durable goods inventories rose 0.6% in November following October's 1.1% gain. Auto inventories rose 0.4%, machinery rose 1.5%, hardware +1%, and lumber 0.8%. On the downside computers fell 1.7%, meals fell 0.7%, and apparel fell 0.3%. As you can see, it was an across the board advance despite some sectors showing lower inventories. This means either more was made, sales were less, or both. As seen, sales were less, and though a lot of that had to do with gasoline price declines, it looked as if the gains were due to a slight slowing in buying. Perversely that will have a positive impact on Q4 GDP if it holds. In any event, the magnitude of the change was not enough to indicate any real change in economic strength.
Weekly chain store sales post a sharp jump, boosting retail morale after a glum post-Christmas week.
Chain store sales surged 3.7% last week according to the ICSC. Redbook recorded major retailer sales at +3.2% year over year. After a disappointing week between Christmas and New Years, the surge was welcomed by retailers who, by nature, fret and moan over each report regardless of what their sales were.
The records show that the gains are due to what we expected when we reviewed this a couple of weeks back, i.e. the redemption of gift cards. With gift cards making up over $18B of holiday sales, sales that are not booked until the cards are redeemed (which begs the question, what happens if they are never redeemed as happens more than you would think; in cleaning up after Christmas I found two I had received earlier in 2005). That leaves the door open for a large than traditional January sales month as seen with the above figures, but it is all a shell game: the sales were in December and these are only redemptions of plastic IOU's. Thus moaning over lower December sales that you know are going to be made up by January and February gift card redemptions is a waste of effort. Overall sales were a lot better than you would have anticipated listening to those who have again written the consumers' obituary. The weekly sales figures don't alter that, they just move it around between December and January.
THE MARKET
MARKET SENTIMENT
On the pre-market show on one of the financial stations the VIX was brought up with the vague reference that 'traders were pointing to the VIX as a problem area' given its low levels. VIX has been at levels considered low for over two years. They spent all of 2005 bouncing in a range from 10 to 17; at either end of the range that would be considered low.
The problem is, VIX only means something when it is actually relative to the market. In other words, sometimes the VIX correlates and other times it does not. Look back to 1994. VIX trended lower for four years before reaching that level. Now normally you would associate low volatility with a market top. That is the very general rule of thumb. Well, the market did move laterally that year due to Fed action, but after that the market rallied through 2000. VIX rose all the while. The corollary to the general rule is that higher volatility suggests a bottom. Yet VIX rose as the market rose until the market peaked in 2000 as volatility in the market ran higher.
The moral of this story is don't get too wrapped up in VIX and start using it as a primary indicator. There are times when volatility sets up a very nice correlation to market moves and you can play ups and downs in the market based on the rise and fall of volatility. We did that in the bear market. If you based your investing or trades on volatility moves right now it would be a bit harder. VIX may come back into a more useful relationship with the market moves as the year progresses and we will be watching for that. Right now it is a harder read to make.
VIX: 10.86; -0.27
VXN: 15.77; +0.11
VXO: 10.73; -0.01
Put/Call Ratio (CBOE): 0.71; +0.02. The ratio edged higher as the market struggled a bit. While it is not telling us a whole lot here, we like to see it move higher as the market shows a bit of a peak in the run.
Bulls versus Bears:
Bulls: 55.7%. A sharp drop from the 60.4% the prior week, reversing a steady climb through 55%. Well, not reversing it, but putting a big dent in it. Still above the 55% level considered the threshold into excess. It won't stay there, however, given the strong surge this week. Hit 44.8% on the low on this leg, just above the 43.5% low in May.
Bears: 23.7%, up from 20.88%. That was basically the low point on this move and bulls got a bit more skittish last week as the major indices sold to the 50 day EMA. Good surge, taking it out of the danger zone, but likely to fade after this week's 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: +1.63 points (+0.07%) to close at 2320.32
Volume: 2.034B (+0.17%). Volume edged higher in the final tally for the session. Up to the close it was running slightly lower which would have been fine as well given the up and down session that was clearly not an accumulation day. Sure buyers came back in to drive the market back up when it was sold off, but the up and down action shows a stand off between buyers and sellers, and a bit of churn after a strong run. Again, it can hold at this level and consolidate in place to set up the next move, and that is what it was doing Tuesday.
Up Volume: 1.119B (-217M)
Down Volume: 878M (+209M)
A/D and Hi/Lo: Advancers led 1.34 to 1. Well, breadth didn't get much worse, though it was not coming off of any particularly high level.
Previous Session: Advancers led 1.57 to 1
New Highs: 182 (-81)
New Lows: 28 (+4)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
After a strong breakout move from its 2 year ascending triangle, NASDAQ showed some weakness Tuesday as it closed flat, having to stage a big comeback in the afternoon to do so. That in itself shows the dogged strength of the index and its leadership as well, but the up and down action also shows the clear upside dominance has lost its momentum as some profits are booked after a week of strong gains. Chips were still leading, however, and that gave the index a lot of backbone. NASDAQ is still below next resistance, so it is basically a bit top heavy here after surging through the December high (2278). We expect a bit more pullback to test that break higher, but it is a strong move and we will have to see how it handles the consolidation, i.e. a more typical pullback toward near support or a consolidation in place.
SOX (+0.65%) was a leader again, putting together a sixth upside session though it too showed some wear and tear. SOX sold negative intraday but then turned back up for the close. Good strength still, but the upside gains are smaller at this stage of the run as SOX approaches resistance at 532-536 from Q4 2003, an interim peak before more serious resistance at 561.
SP500/NYSE
Stats: -0.46 points (-0.04%) to close at 1289.69
NYSE Volume: 1.727B (+3.67%). Volume edged higher as NYSE indices closed mixed. SP600 posted another solid gain suggesting accumulation in those stocks while SP500 struggled and closed flat, showing a doji on the candlestick. That suggests churning in those stocks as they ran out of upside strength and the buyers and sellers were very active.
A/D and Hi/Lo: Advancers led 1.21 to 1. Even with the small caps charging higher breadth fell back to very modest levels after a very strong showing on the run.
Previous Session: Advancers led 2.03 to 1
New Highs: 267 (-89)
New Lows: 18 (-6)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
SP500 struggled all session, undercutting the Monday low intraday (1283.76) but then rallying back twice, the latter closing it basically flat. Volume was still strong and rose on the session, indicating the large caps were churning, i.e. showing high volume turnover as the buyers were buying but the sellers were selling just as fast. Closed out flat but much more so than NASDAQ it looks like a test of the breakout over 1275 of some degree is ahead.
The small cap SP600 (+0.80%) posted its third sharp gain in a string of 6 upside sessions, not looking any worse for the wear after such an impressive string of gains. Seems that once SP600 tasted the breakout to a new all-time high on Friday and Monday it was even more charged than on the earlier moves. Nice breakout from a 5 month base and it turned the attempted head and shoulders in late November and December on its head. If the other indices slow further, SP600 will be impacted, but it is showing great strength after lagging on the original stage of the rally.
DJ30
No sooner than 11K was broken DJ30 sold below that level, falling to 10,949 intraday. To its credit it recovered on rising, above average volume and held that level on the close. A good recovery that shows buyers were there and in overcoming the aluminum anchor chain of Alcoa, but the candlestick chart pattern is a hanging man doji, indicating the week of moves needs a bit of a breather. Still holding the breakout, still in decent shape, but it has not overpowered the resistance at this point.
Stats: -0.32 points (0%) to close at 11011.58
Volume: 264M shares Tuesday versus 248M shares Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Another light day from an economic perspective with oil inventories the only scheduled report. Outside of the PPI later in the week and CPI next week (due to its relevance to Fed action) more and more focus will turn to earnings. Tuesday saw the range with AA missing and AAPL slamming the ball out of the park with its pre-announcement. AA was hit for 3%, AAPL rose 6%. Stocks growing earnings and sales are rewarded; stocks holding steady or missing are hit. After hours DNA reported in line earnings and 2006 sales up 35% to 45%. As an old girlfriend told me once, that just isn't good enough. We parted ways, and after hours investors were doing the same with DNA as it lost 2.2% from the close.
Yes we are entering earnings season and that is going to garner the attention, particularly after the FOMC minutes rally seen the past week. The gains to this point put an extra premium on results and the future as stocks have rallied ahead of the news. AAPL surged but we also note it did not participate whole hog in the rally, instead consolidating before the big move Tuesday. In short, AAPL is the exception as most stocks, particularly techs, have rallied into this earnings season.
The market is at its first test as it starts to slow the advance and will consolidate the gains. Tuesday it did so running in place, and it can do that without any appreciable pullback. As noted above, that is the sign of a strong rally. It remains to be seen what form the consolidation takes, but while it figures that out we are going to be watching for the next rotation of money. This market has thus far continued to fan out the move, and as say techs take a breather we are going to look for the next moves from energy, or metals now that the latter has had a bit of a pullback (at least in some areas), or other areas that have held back but then start higher off of support. This market may pull back in a more traditional test, but it is showing a lot of strength, and we just want to be ready to take advantage of the new money that moves in.
Support and Resistance
NASDAQ: Closed at 2320.32
Resistance:
2328 from the May 2001 peak
3015 is the December 2000 peak and the October 2000 low
Support:
2288 from December 2000 low.
2278 is December 2005 intraday high.
The 10 day EMA at 2277
The 18 day EMA at 2262
2251 is the January 2001 low
The 50 day EMA at 2227
2220 (2218 intraday) is the August high
S&P 500: Closed at 1289.69
Resistance:
1315 is the May and May 2001 peaks
1324 to 1329 from the October 2000 lows.
Support:
The recent highs at 1275
The 10 day EMA at 1275
The 18 day EMA at 1269
1264 from the December 2000 lows
The 50 day EMA at 1253
The August 2005 high at 1246
The September 2005 high at 1243
March 2005 closing high at 1225 and intraday high at 1229.11
Dow: Closed at 11,011.58
Resistance:
11,176 - 11,186 from April 2000
Support:
10,985 is the March intraday high
10,965 from Q4 2000 and late November 2005
The 10 day EMA at 10,908
The 18 day EMA at 10,874
10,868 is the December 2004 high
The 50 day EMA at 10,769
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
Price consolidation at 10,600
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
January 09
Consumer Credit, November (3:00): -$600M actual versus $5.0B expected and -$8.4B prior (revised from -7.2B)
January 10
Wholesale Inventories, November (10:00): 0.4% actual versus 0.5% expected and 0.2% prior
January 11
Crude Inventories, 01/06 (10:30): -1.013M prior
January 12
Export Prices ex-ag., December (08:30): -0.9% prior
Import Prices ex-oil, December (08:30): -0.2% prior
Trade Balance, November (08:30): -$66B expected and -$68.9 prior
Initial Jobless Claims, 01/07 (08:30): 320K expected versus 291K prior
Treasury Budget, December (2:00): $4.2B expected versus -$2.9B prior
January 13
Retail Sales, December (08:30): 1.0% expected and 0.3% prior
Retail Sales ex-auto, December (08:30): 0.4% expected and -0.3% prior
Business Inventories, November (08:30): 0.4% expected and 0.3% prior
PPI, December (08:30): 0.4% expected and -0.7% prior
Core PPI, December (08:30): 0.2% expected and 0.1% prior
End part 1 of 3
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