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world stock market, us stock market
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2/25/06 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: BMRN; OXPS; DIOD
Trailing stops: None issued
Stop alerts: RRC
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 survives serious oil issues, lives to fight another day.
- Friday Fed comments are quite alarming.
- Durable goods dive like a falling airliner.
- Huge week of economic data as market tries to pull together and resume the upside.
Market overcomes serious issues, posts modest gains, holds status quo again.
Once again oil was setting up for a more serious decline, but once again outside forces are working to support prices and send them higher. Iran has been on the burner and the Nigerian 'total war' against foreign oil interests helped start prices higher. Friday bad news was gushing like a blowout well. Nigerian rebels released pictures of the hostages. Venezuela is denying landing rights to American Airlines as retaliation for something that happened back in 1998. And the big one, a double car bomb attack against Saudi Arabia's largest oil facility, the one that handles two-thirds of all Saudi production. The attack was thwarted, but it was ballsy, a straight on attempt.
This is what we wrote about in 2005 as the major terrorist threat. While many would say the US is still pretty wide open for an attack, we have hardened our targets and they are not as easy picking now that it is a national issue. The terrorists want to take down our economic might because they know that our strength, our ability to defeat anyone, lies with our incredible economic engine that develops new technologies and also the cash to finance our policies and goals. Taking out the twin towers was an attempt to cripple our financial nerve center. It failed; the NYSE was up and running within a week, an incredible accomplishment and a testament to Dick Grasso, something those claiming he made too much money at the exchange should consider.
If you cannot get the US economy to fall after demolishing its nerve center, what do you do? You go after what fuels the engine, and that is oil. The place to go? The Middle East and one of the US' biggest oil allies. After a new appearance by OBL where he threatened more attacks against the US, AQ hits Saudi production facilities. A bit of a head fake, a bit of deception, both classic AQ. Fortunately it did not succeed or oil would have shot toward $90/bbl. It changes the game, however, because now the terrorists have finally shown they are willing to destroy what they consider their resources in order to accomplish their goals. That should not be that surprising. After all they are willing to kill the very people throughout the world they claim to fight for.
That brings us to another serious issue for oil and the market: the growing unrest in Iraq. It is close to becoming a victory for the terrorists. After the elections the process was accepted by all Iraqi factions, the gears were in place and the wheels were turning toward a democratic state. When all of the factions participate, they have implicitly accepted the government and are working within it. In a last ditch effort the terrorists have managed to whip up the historical animosity between them to the point where they are destroying each other's sacred Islamic temples, something that they would supposedly never do. Kind of ironic given that some were ready to burn the west over cartoons depicting their prophet. It is the same story everywhere: a family can fight amongst itself but woe be to any outsider that tries it. Iraq could fall into civil war, and if that happens its oil supply will be off the market for years because it will be destroyed as the sides try to wrest control.
Oil jumped $2.37/bbl to 62.91. Just last week it was at 58. The market managed to fend off a selling attempt, particularly in NASDAQ and SOX, thanks to that decline. Even with the Fed minutes being more hawkish and the Fed funds futures contract building in the potential for yet a third additional rate hike, that lower oil price helped the market make a stand. Oil is now heading right back up, so again the market has to confront the Fed and energy.
Friday it did a decent job of that. The Saudi attack is the kind of news that would have blown the market apart in 2005. Friday stocks started modestly softer and did sell early on, but it was never anything threatening. Volume remained low as stocks sold but then almost immediately rebounded after hitting support. They defied the news as well with a midmorning run that was tested early in the afternoon and then rebounded in the afternoon session. Volume was lower and breadth was mediocre, but they managed to overcome the bad news, hold support, an actually rebound.
That kept the market at status quo, and that keeps things mixed. SP500 is still working on the handle to its double bottom with handle base. SP600 led the market again, and it is trying to break to a new all-time high; it succeeded with a new closing high. NASDAQ managed a gain as well, holding onto the attempt at a higher low this past week and thus its chance of breaking the strong of lower lows. SOX held the 50 day EMA once more, showing a doji at that level. The latter two are setting up to try an upside move to support the NYSE indices. The market needs them, and it needs more strength overall. Volume has lagged, breadth is spotty to mediocre, and leaders have come under pressure (though many still remain in excellent position).
Simply put, the market is at a classic point where the bulls and bears are evenly matched. It helps that the indices are in overall uptrends and are basing some, trying to set up for a move higher. It helps that they overcame bad news and posted gains of any kind. After looking weak the past two weeks and with the markets (bond and equities) giving different signals, the ability to shrug off some really ugly news is a showing of unexpected strength. It will need to build upon this strength in the coming week as the market is flooded with economic data.
THE ECONOMY
Fed comments turn more hawkish (and frightening) to end the week.
Hate to beat a dead horse, but the Fed continues to change course, or at least appears to, with each statement. It was ready to stop in January, but then Greenspan retires and says 5 days later that the economy is a lot stronger than he thought. The Fed comments it is worried about strong employment, a lagging indicator it used as an excuse in 2000 to continue hiking rates right into a market crash. Employment was believed to be weak, even by the Fed, until just the past six months. When the data finally comes through it is now afraid employment is too strong. Give me a break.
We are also hearing the same dogma from outside the Fed that we heard in 1999 and 2000. Friday we saw articles quoting economists are saying that production capacity is strained at the current levels. They are not at historic highs and are no higher than in 1999 and 2000, and have not been at those levels for as long a period. It seems that once the economic strength has been finally accepted (though we still heard just the other day from one commentator that the economy was still in tatters) after over a year of denial, the jump to a belief it was too strong took no time at all. It seems you fight as hard as you can to achieve economic strength, but once you get there you have to immediately dismantle it.
This is all baloney. The economy is just fine but it is not surging out of control. This was the belief in 2000 and as noted, we see it again now. All it is doing is prompting the Fed to remain in the game too long as lagging indicators are used to judge an economy that is deep into an expansion. The Fed, however, is sticking to the script we laid out in 2005, i.e. the Fed starts out talking a good, rational game about how it should conduct a rate hike campaign. Six months ago the FOMC minutes even cautioned about going that one rate hike too far and how the Fed had a history of doing that.
Now we have the same whipped up fears of inflation seen back in the late 1990's as well as the belief that the economy is bulletproof. With just about everyone climbing on board the economic soul train, it is time to get really worried. Particularly when you hear comments from Fed governor Poole Friday who casually says he isn't worried about the Fed going too far because the economy is so strong it can handle it. Poole even went as far to say the economy was 'not fragile' and could withstand a Fed "policy mistake," i.e. raising rates too high "without a recession developing." Well Mr. Poole, the 2000 economy was thought to be without compare and the Fed made a policy mistake, and we gave away trillions in retirement, our technological advantage, and ultimately millions of jobs overseas.
The problem is, when the Fed makes a mistake, it is typically huge, impacting all US citizens. The signs are the same as in 2000 with an inverted yield curve (flirted with 20BP last week, closing at 15BP on the 10 year and 20BP on the 30 year) that the Fed denies, as it did in 2000, means a recession or slowdown is ahead; an aging expansion; signs of slowing popping up unexpectedly here and there. In addition you have to add massively higher energy costs as an extra economic burden.
We said it before: sustained high energy costs are not inflationary, they are destructive to an economy. For whatever inflationary aspects they may have, the destructive forces far, far outweigh them. High energy costs tax consumers and businesses and they really impact investment in our economy. That money is burned up in the tank or sent overseas for foreign oil, taking out o four hands to be invested in our domestic industries and technologies. As with the high tax rates in the late 1990's that created the huge surpluses and stole investment capital from the economy, ultimately helping in its collapse, high energy costs divert needed capital from the economy. On top of that the Fed is raising interest rates and lowering money supply. Even an expanding economy can't handle that for long.
Yet, the Fed is ready to make a 'mistake' once more, thinking the economy is strong enough to handle it. That is as cavalier, egocentric, and denies its own recent history in 2000 when it tanked the economy with its prior rate hiking gambit. It is as plain foolish as thinking an inverted curve is no big deal. Of course, Greenspan said it was no big deal in 2000, and he was absolutely wrong. The Fed likes to take the exception and make it the rule just as it does with inversions and the Phillips Curve. There is only one occasion an inversion did not result in a recession. The Phillips Curve only accurately describes six brief years of economic history. Talk about betting the long shots with our money, our businesses, and our lives. We get mad because history does repeat itself and it is setting up to do the same thing again.
Durable goods drop like a stone.
Have you ever wondered why a washing machine, a product included in the definition of a durable good, i.e. designed to last 3 or more years, only has a one year warranty? Government reports are suspect in any event, but this obvious divergence from reality just makes you scratch your head.
Anyway, if you multiply expectations by 5 you get the actual number: -10.2% versus -2% expected. The cause was a huge drop in civilian aircraft. After three very strong months, orders for aircraft had to drop, and when they did the report showed its worst decline in 5.5 years. Factor out transportation, however, and you get a decent 0.6% gain.
It was not all just transportation as computer orders fell 11%. The most critical element, business investment, fell 0.4%. It was the third decline in a row, and another indication that the real economy, the one that keeps us strong down the road, is not as healthy as everyone thinks. There is the economy that we all see and know, i.e. the consumer going to the store and buying, companies hiring new workers and paying existing workers more - - basically the demand side. The other side, the one that was killed off in the 2000 recession, is the business side or the supply side, the part of the economy that invests in the future with R&D, better plants and equipment, more technology, etc. Those build the future of economic growth, and without that investment the economy dwindles. If it gets too withered we start to lose competitive advantage as we did in 2000 when we lost capital investment for three years and gave away our technological lead as well as lots of jobs.
Thus when business investment starts to flag despite all of the talk on the financial stations about how strong all businesses are, you have to take a bit of notice. It is not a major drop yet, but it is not as strong as it was and the Fed needs to be asking questions about where it is going as opposed to worrying about people with jobs causing inflation.
THE MARKET
MARKET SENTIMENT
VIX: 11.46; -0.41
VXN: 15.16; -0.43
VXO: 10.62; -0.45
Put/Call Ratio (CBOE): 0.93; +0.09. Edging higher as the market continues to work laterally. That is a good indication. Even though the market is not breaking down (though it is no pillar of strength), pessimism is rising.
Bulls versus Bears:
Bulls: 45.3%. A strong drop from 48.9% the week before. A fairly precipitous decline the past few weeks from 60.4% hit in January on the high for this cycle. 35% is considered an extreme level that can indicate a reversal, but readings of 44.8% on the low on the last leg and 43.5% in May triggered solid market rebounds. Getting close, and with NASDAQ at support and trying to make a higher low, the timing is good.
Bears: 29.5%. Strong climb from 27.7% and 25.3% before that. The market never turned overly positive as measured by this indicator as it never reached below 20% on this move. It is at a level that can help the market turn. 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: +7.72 points (+0.34%) to close at 2287.04
Volume: 1.591B (-12.15%). Volume slid lower below average, capping a very low volume week. No real volume power but given the lateral move over the 50 day EMA, not necessarily a bad thing. It did not distribute, showed some modest accumulation, and basically was quiet during a consolidation. That can be good, but it will have to prove it.
Up Volume: 950M (+96M)
Down Volume: 615M (-300M)
A/D and Hi/Lo: Advancers led 1.38 to 1. Modest volume all week, up or down.
Previous Session: Decliners led 1.2 to 1
New Highs: 142 (-8)
New Lows: 25 (+7)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ capped a week of moving laterally over the 50 day EMA (2263) on low volume. It was unable to expand upon the prior week's rebound where it came back from undercutting the 50 day. It made an important move this week, holding the 50 day on this test, attempting to make a higher low after two lower highs and that lower low. It also managed to recover the December peak (2278), keeping the move alive at a higher level. NASDAQ has lagged ever since the big tech earnings started to hit in January. It is making its last attempt to keep the early January break higher alive.
SOX (+0.01%) went home for the weekend on Thursday, showing a tight doji Friday on very low volume. Actually it was not a bad session. Similar to NASDAQ, SOX is spending time near the 50 day EMA (519.93), dropping to that level to start the week and then working laterally. Needs to hold here and make the rebound.
SP500/NYSE
Stats: +1.64 points (+0.13%) to close at 1289.43
NYSE Volume: 1.436B (-8.74%). Volume ended the week lower just like NASDAQ. Also, it showed the same light accumulation and no distribution. That is good action after a solid upside move on rising volume the prior week: low volume consolidation as it forms the handle.
A/D and Hi/Lo: Advancers led 1.51 to 1. Not bad breadth all week, and that is good to see as SP500 worked to form a handle.
Previous Session: Decliners led 1.31 to 1
New Highs: 180 (-59)
New Lows: 17 (-4)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 posted a modest gain Friday on lower and continued below average volume. It is just below the January high at 1295, working laterally as the 10 day EMA (1283) rises to catch up with the move two weeks back. It is almost there, and SP500 will be ready to try the breakout move this coming week. A nice setup with this 7 week base. Now it has to show us the action.
The small cap SP600 (+0.54%) rallied Friday, making a new all-time closing high, just shaving the December closing high. It is still fractionally below the intraday highs and as noted last week, is hugging the upper channel line at 380, right where it closed. It is likely it moves laterally just a bit before breaking higher, but if SP500 makes the move before it rests, SP600 will likely try to follow.
DJ30
DJ30 reached down toward the 18 day EMA (10,989) intraday and then rebounded for a modest loss. Low, below average volume. Nice intraday test and rebound, working to shakeout some sellers as DJ30 forms its own handle similar to SP500. Good consolidation of the solid break higher the prior week. That move sets up the next break higher.
Stats: -7.37 points (-0.07%) to close at 11061.85
Volume: 247M shares Friday versus 270M shares Thursday. Good price/volume action the past week with strong trade on the Wednesday up session and lower on the downside sessions.
The chart: http://www.investmenthouse.com/cd/^dji.html
MONDAY
A ton of economic data hits the market this week, a market that is holding up rather well given the load of negatives confronting it. It threatened to break down early in the week with NASDAQ and SOX falling, but it managed to recover, hold the line, and work laterally to close it out. SP500 and DJ30 look good, SP600 is at its prior highs and could go either way, and NASDAQ and SOX are at key support, trying to turn the tide from the deteriorating technical patterns shown this year.
All things considered the way the week closed out was not bad. It could have been a lot worse but the indices held the line when they had to and then appeared to brush off some potentially devastating news Friday. That is the sign of health as a weak market would have given in. Instead it held support and continued a lateral consolidation. We are not about to declare an upside victory; all are pretty pictures until they show the strong moves.
The market is holding up where it has to, but it has shown erosion before the rather modest recovery the past two weeks. DJ30 broke out and SP500 is attempting to set up to do the same, but the distribution before the rebound was stronger than the upside action since. Moves are all relative. As a stock moves higher and higher, the runs typically weaken until it has to correct back set up for the next move. This last move higher is relatively weaker than the prior upside moves as well as the distribution that followed those moves. Thus while the action has improved, it is not showing relative strength to those moves.
There are still many stocks in the market that are holding up just as are the indices. Many of those are showing real strength, not just hanging on. A market is made up of leaders, and as long as they hold up and can lead, the market can continue higher. Just look at oil; it looked ready to roll over many times but continues higher because it gets the right catalyst. We are going to continue to take advantage of those strong stocks if they continue to show the moves. At the same time we are going to keep watching the overall market action; if it deteriorates after this consolidation attempt it is likely to get ugly.
Support and Resistance
NASDAQ: Closed at 2287.04
Resistance:
2288 from December 2000 low.
The late January high at 2314.36
2318 is the October/December up trendline.
2328 from the May 2001 peak
The January high at 2333
3015 is the December 2000 peak and the October 2000 low
Support:
2278 is December 2005 intraday high.
The 10 day EMA at 2276
The 18 day EMA at 2275
2273 is December 2005 closing high.
The 50 day EMA at 2263
The October 2005 up trendline at 2248
S&P 500: Closed at 1289.43
Resistance:
The January high at 1295
1315 is the May and May 2001 peaks
1324 to 1329 from the October 2000 lows.
Support:
The late January peak at 1285
The 10 day EMA at 1283
The 18 day EMA at 1279
The December highs at 1275 (intraday) and 1273 (closing)
The 50 day EMA at 1270
1264 from the December 2000 lows
The bottom of the November/December 2005 range at 1248
Dow: Closed at 11,061.85
Resistance:
11,176 - 11,186 from April 2000
11,350 from the May 2001 peak.
11,401 from the September 2000 peak.
11,425 from April 2000 peak
Support:
11044 is the January high.
The 10 day EMA at 11,039
The 18 day EMA at 10,989
10,985 is the March 2005 intraday high
10,965 from Q4 2000 and November/December 2005
The 50 day EMA at 10,890
10,868 is the December 2004 high
10,754 is the February high
10,720 is the high in the recent lateral move
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
February 27
New home sales, January (10:00): 1.260M expected and 1.269M prior.
February 28
GDP second preliminary, Q4 (8:30): 1.5% expected, 1.1% first iteration
GDP chain deflator, Q4 (8:30): 3.0% expected, 3.0% prior.
Chicago PMI, February (10:00): 58.2 expected, 58.5 prior.
Consumer confidence, February (10:00): 105.0 expected, 106.3 prior.
Existing home sales, January (10:00): 6.58M expected, 6.60M prior
March 1
Personal income, January (8:30): 0.6% expected, 0.4% prior
Personal spending, January (8:30): 0.9% expected, 0.9% prior
Construction spending, January (10:00): 1.0% expected, 1.0% prior
ISM, February (10:00): 55.1 expected, 54.8 prior
Crude oil inventories (10:30): +1.121M
March 2
Initial jobless claims (8:30): 278K prior
March 3
Michigan sentiment, final, February (9:50): 87.5 expected, 87.4 prior
ISM services, February (10:00): 58.0 expected, 56.8 prior.
End part 1 of 3
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world stock market
us stock market
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