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us stock market, stock prices
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01/25/06 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: NOVL; CKCM
Trailing stops: None issued
Stop alerts: STJ; ABAX
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:
- Attempt to extend rebound gains fails, returning stocks to support.
- Existing home sales fade with price weakness found in non-boom markets.
- Buyers scarcer and sellers more prevalent as indices struggle to resume rally.
Tuesday strength is Wednesday's selling opportunity.
Stocks tried to extend the Tuesday rebound and recover more ground from the Friday dump lower, but as soon as SP500 moved within spitting distance of 1275 the showed up and pushed stocks lower. Futures started positive on the back of some good earnings and guidance along with lower oil prices. The market hit its zenith for the day, however, at the opening bell.
Nothing seemed to help. The early selling was met with a midmorning buying attempt, but stocks could only muster a higher low. When the second bond auction of the week came in with more tepid results, bonds were sold and stock investors decided to join in. Oil inventories were weaker than expected, but strong builds in gasoline and heating oil helped drive oil prices lower. No help to stocks. Existing home sales faded yet again, and with the Fed looking at the housing market as part of its rate hiking decision tree that might have sparked some interest. Maybe in another environment but not Wednesday. Stocks failed on that first rebound attempt and then made a series of lower highs through the rest of the session.
Volume turned up on the rollover, continuing the string of strong volume sessions. With the rollover, however, the rising volume shows there was some distribution, i.e. big money dumping, of stocks. It was not enough to push the indices through the support that has held this week (basically the 50 day EMA on NASDAQ and SP500), and SOX managed a fractionally higher close. Indeed SOX and the SP600 look ready to move right back up, just what you would expect from leaders.
The market's problem is with the large caps. NASDAQ and SP500 are still holding up, but this failure to recover much ground from the Friday dump lower and the higher volume failure to hold early gains is moving the patterns from strength to problematic. SP500 has failed at its recent trendline and 1275 resistance three times this week, and many floor traders are viewing that as very significant. We are looking at the NASDAQ 100 as well; it closed below the 50 day EMA for the third time in four sessions, falling on big volume Wednesday. It also posted the worst loss of the major indices (-0.55%) after it made a lower high this week. SOX and SP600 look very much as if they are continuing normal, healthy action within an uptrend. The large caps, however, are seriously struggling.
We have discussed the before, i.e. why the lagging guidance that has hamstrung the large caps is occurring. These mega caps for the most part are not growth companies, instead relying on existing products to drive profits. That means selling more units and/or squeezing more profit out of each unit sold. That is a major reason they are not only failing to hire more workers but are in many cases still actively cutting their workforces in an effort to reduce the overhead costs that eat away at each sale.
With energy prices holding at very strong levels, companies have a fixed cost that is taking more bite out of each unit sold. If energy resumes its move once more, that means even less profit. Thus, weaker outlooks ahead. Since they cannot grow their way out of the problem investors are reevaluating reasons for holding them. Dividend payments help, and that is likely why we have not seen a more rapid exodus.
As a result, SOX and SP600 still look ready to lead, but NASDAQ, dragged by its mature mega cap leaders, is having a hard time following. Without NASDAQ, SOX and SP600 likely don't have enough stones to lead the market higher. They might move up themselves a bit, but they won't get too far. The key is whether NASDAQ can get enough solid outlooks from its mega caps and the rest of its stocks to continue the rally. If that occurs there is more life ahead. If SP500 and DJ30 lag even as NASDAQ resumes its move, however, the lifeline of the upside move is shortened. A market divided has a hard time sustaining upside moves for significant periods.
THE ECONOMY
Existing home sales fall 5.7%.
Housing continues to cool with December existing sales down well in excess of expectations (6.6M versus 6.87M expected). Existing sales make up 80% of the market, but existing sales are often overlooked in favor of new home sales. That is the tail wagging the dog, but that is why analysts frequently get it wrong.
It was no surprise the decline continued; the market has formed a big top over many months. Median home prices continued to rise, however, hitting $211K versus $204K. Prices lag, tending to rise even as the market cools. According to many real estate agents and brokers, however, prices are starting to turn as houses sit on the market longer. Not surprisingly, inventories are rising as well, moving up to 5.1 months from 4.4 months. More supply, fewer buyers, lower prices.
Where prices are dropping the most was the surprise. Predictions have been that the hot markets would cool and some would even collapse. They aren't. The majority of the losses have been in the markets that were weaker all along. Some have said the weaker markets would improve as the hot markets cooled. Seems lagging areas are lagging for a reason just as lagging stocks lag for a reason. It has always intrigued us to hear brokers tout a stock in a sector that has lagged the others in the same sector. The assumption is it has to rally as well. If the overall rally is strong that is often the case, but it is the first to go when the rally ends. Money was looking for a place to go when the other stocks had already made strong runs, and that pumped up the laggard. When sanity returns the laggard is dropped for the same reason it was overlooked at the rally's start: it doesn't have the credentials of its breathren.
THE MARKET
MARKET SENTIMENT
VIX: 12.87; -0.44
VXN: 17.93; -0.44
VXO: 12.31; -0.3
Put/Call Ratio (CBOE): 0.86; +0.29. Moving back up after that bug Tuesday drop, but not high enough and not enough closes over 1.0 to make a difference at this juncture.
Bulls versus Bears:
Bulls: 57.3%. Up slightly from 56.8% the week before. That was a one-week decline after hitting 60.4% the week before. Still over the 55% level considered extreme. This, as with VIX, is an indication and not a fact of market direction. Hit 44.8% on the low on this leg, just above the 43.5% low in May.
Bears: 22.9%. Creeping higher after 22.1% and 23.7% the prior two weeks. That followed a low at 20.88%. 20% is the threshold where a lack of bears is considered extreme and bad for the upside. 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: -4.6 points (-0.2%) to close at 2260.65
Volume: 2.255B (+4.88%). Volume really jumped as NASDAQ gapped higher but then gave the entire move back. That shows some selling coming into the picture that has not been present for quite some time. Higher volume at the 50 day EMA is not necessarily bad as it can show buyers stepping in to support stocks. The rollover from the stronger open shows there was selling as well.
Up Volume: 1.005B (-230M)
Down Volume: 1.218B (+379M). The up/down ratio was not out of control. It matched the session.
A/D and Hi/Lo: Decliners led 1.21 to 1. Not bad, but of course the price losses were minor and this matched that action. If it had been out of whack one way or the other it would mean something.
Previous Session: Advancers led 1.97 to 1
New Highs: 200 (+11)
New Lows: 34 (0)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ looked solid pre-market and gapped up to the 10 and 18 day EMA (2274ish). That did not last as the gains were eroded from the start. NASDAQ made a series of lower highs, the key being when the first recovery attempt midmorning failed. In the end NASDAQ managed to hold the October to December up trendline (2253) and the 50 day EMA (2245.83), keeping it alive above key support. It was rebuffed, however, when it tried to clear the December highs (2273, 2278), and that is a key point that NASDAQ has to break through with some authority. The large cap techs are bleeding the index right now, and it has lost traction on each rebound attempt due to their weakness. This struggle at the 50 day EMA is a key battle for the market because SOX and SP600 need NASDAQ to support their good patterns.
SOX (+0.16%) was in the green much of the session before slipping negative in the afternoon selling. On the low it tapped the 18 day EMA (515) and rebounded; superb action. Unfortunately the large caps are not complementing that strength. SOX remains poised to rally as it consolidates well and some more semiconductor stocks reported good results and forecasts after hours. It can lead, but it needs NASDAQ to come along.
SP500/NYSE
Stats: -2.18 points (-0.17%) to close at 1264.68
NYSE Volume: 1.873B (+0.61%). Volume was strong once more as the large cap SP500 churned over the 50 day EMA, giving up an early attempt at key resistance. It has not broken down, but there is a lot of turnover between the 50 day EMA support and the near resistance. Big battle ongoing here between buyers and sellers.
A/D and Hi/Lo: Decliners led 1.16 to 1. Very modest thanks to small cap strength.
Previous Session: Advancers led 2.1 to 1
New Highs: 223 (-26)
New Lows: 45 (+9)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
SP500 is churning over the 50 day EMA (1260.82), i.e. running in place on strong volume. Tuesday it posted a gain, but it closed well off its intraday high. That was not that bad, but in light of the Wednesday action where it ran higher to the same resistance hit Tuesday and then turned negative, the volume shows competition between sellers and buyers. Buyers did support the index at the 50 day EMA but sellers are turning it back at the key 1273 to 1275 range. There is not much room to maneuver in this narrow range, and thus far the large cap earnings have inspired some selling versus any buying. SP500 has dropped back into the December range and is thus far making a lower high, making the pattern a bit more toppy. Key battle underway on this index as to the rally's continued viability.
SP600 (-0.17%) held up quite well. It was up early with the rest of the market, hitting a new all-time high. It slipped and slid back all session as well, but it had a bit more gas left in the tank in the afternoon, rebounding to recover most of its losses. As with SOX, SP600 is set to lead but it too needs the third part of the triumvirate (NASDAQ) in order to make a meaningful continuation of the rally.
DJ30
Next to SOX, DJ30 was the strongest index with its 0.02% decline. Another doji just over 10,700, the point that marks the hump in its 11 month double bottom with handle base. Still well below the 50 day EMA (10,787), resistance at 10,800, etc. We are not expecting much from it, so we are not disappointed with its lackluster performance. Indeed, we often wonder if it is even worth covering it.
Stats: -2.48 points (-0.02%) to close at 10709.74
Volume: 412M shares Wednesday versus 375M shares Tuesday. Volume is definitely running hot the past week as DJ30 sold off hard and now tries to put together some kind of recovery. That 50 day EMA will be a stumbling block.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
Already Thursday and the market has gone nowhere this week. When stocks could not make a quick, meaningful recovery after the big Friday drop, a more drawn out recovery attempt loomed as buyers and sellers slug it out. Oil prices and a flat yield curve versus a market breakout from multiyear bases. That is the real battle or dichotomy. Oil price are too high and the flat yield curve is always something to consider despite arguments it is not as important this time around. We heard some commentary regarding oil at $80/bbl and even $100/bbl not impacting the US' economic viability. To put it nicely, that seems a bit of a stretch. The economy and market have been rather flexible with this oil run-up, showing great elasticity, but that cannot continue with indefinite price increases.
Indeed, Wednesday was somewhat telling as oil prices backed off significantly from the recent peak yet stocks foundered. The downside move in oil has not sparked any new buying interest. You can argue that the lack of response even at lower levels indicates oil is too high for the economy and the toll will be paid at some point, or you can argue that the price is still below the choke point and that is why $3 or so movements don't effect stocks.
To us oil is still a big issue, but the market is going to determine just how big. We don't like the action in the large caps. No breakdown yet, but a real struggle and the return of some distributive action. At the same time semiconductors overall and small caps overall look very solid. As noted above, the outcome of NASDAQ's fight to recover after this sell off is likely to hold the key to the rest of the market, and its pattern is problematic at this juncture, moving from pretty solid strength to more shakier footing.
No breakdown yet, and many stocks simply did more of the same, i.e. testing back toward near support. Those leaders provide the backbone of the market, and if they hold the line the indices tend to do the same. Indeed, if this pullback is resolved positively, then many of these will present new buys. Energy stocks were pulling back Wednesday along with other techs and indeed many stocks throughout the market. There is still work to do before most are ready to rebound. However, we do see some that are set up well, just needing a push to start back. We are going to be ready to take advantage of some of these if NASDAQ and SP500 can resolve their large cap issues positively. The market is at a test stage right now where it will decide if the rally continues or dies back. Time to be a bit cautious with new buys and let current plays run as long as they hold near support. Again, if the pullback is resolved positively, they will provide opportunity on the rebound.
Support and Resistance
NASDAQ: Closed at 2260.65
Resistance:
2273 is December 2005 closing high.
2278 is December 2005 intraday high.
The 18 day EMA at 2273.85
The 10 day EMA at 2274
2288 from December 2000 low.
2328 from the May 2001 peak
3015 is the December 2000 peak and the October 2000 low
Support:
2251 is the January 2001 low
The 50 day EMA at 2245.82
2220 (2218 intraday) is the August high
2216 is the August 2005 high
2210 is the second October up trendline
2178 to 2182 from the December 2004 high and the September 2005 high; these roughly mark the breakout from the 2 year base.
S&P 500: Closed at 1264.68
Resistance:
The October to December up trendline at 1272
The 10 day EMA at 1272.27
The 18 day EMA at 1272.61
The recent highs at 1275 (intraday) and 1273 (closing)
1315 is the May and May 2001 peaks
1324 to 1329 from the October 2000 lows.
Support:
1264 from the December 2000 lows
The 50 day EMA at 1260.82
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 10,709.74
Resistance:
10,720 is the high in the recent lateral move
10,754 is the February high
The 50 day EMA at 10,787
The 10 day EMA at 10,794
The 18 day EMA at 10,825
10,868 is the December 2004 high
10,965 from Q4 2000 and late November 2005
10,985 is the March intraday high
11,176 - 11,186 from April 2000
11,248 from the May 2001 peak.
11,238 from the September 2000 peak.
Support:
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 23
Leading Economic Indicators, December (10:00): 0.1% actual versus 0.2% expected and 0.9% prior (revised from 0.5%).
January 25
Existing home sales, December (10:00): 6.60M actual versus 6.87M expected and 7.00M prior (revised from 6.97M)
Crude oil inventories (10:30): -2.309M versus +2.741M prior
January 26
Durable goods orders, December (8:30): 1.0% expected and 4.4% prior
Initial jobless claims (8:30): 300K expected and 271K prior
Help wanted index, December (10:00): 39 expected and 39 prior
January 27
Chain Deflator, Q4 (8:30): 2.6% expected and 3.3% prior
GDP, advance, Q4 (8:30): 2.8% expected and 4.1% prior
New home sales, December (10:00): 1.225M expected and 1.245M prior
End part 1 of 3
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