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stock prices, stock market timing
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3/01/06 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: ATHR; NURO; PDS; EZPW; NSM
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 finds economic data palatable despite rising oil prices, jumps back in the face of the Tuesday selling.
- PCE deflator softens and the market likes it.
- National manufacturing tops expectations, continues expansion to 33 months.
- Construction spending falls well short of expectations despite warm month.
- Stocks make the necessary recovery and now have to take out those highs.
Market fights fire with fire, rebounds sharply from Tuesday selling.
Sometimes the market mimics the weather. One day there is a nasty gully washer, the next a beautiful spring day. Sometimes you see clouds and hear thunder, but then the sky clears without any damaging storm. The clouds built up over the past few weeks as the market struggled to get through to new highs as price/volume action and breadth deteriorated. Tuesday looked to be the start of the storm with the high volume sell off as the indices failed to take out key resistance.
The front blew through, at least for Wednesday, however, as the market started a bit higher, tested the move, and then surged back up to the recent highs. Volume improved on NASDAQ and though lower on NYSE, was solid as well. Breadth almost completely reversed as well with both NYSE and NASDAQ posting better than 2:1 advancers. NASDAQ and SP500 are again probing the late January and January highs, respectively while SP600 hit a new closing high. As we said Tuesday, the market has shown a propensity to rebound to start new months, and Wednesday it was doing just that.
One of the keys Wednesday was the return of semiconductors. SOX surged off of the 50 day EMA as chips once again came to life, SOX surging 4.33% on the session. That was the missing ingredient of late as the chips got some downgrades and sat out the recent upside attempts. With the chips no longer down the market was able to put together and hold onto a solid advance.
Another boatload of economic data hit the market from the much ballyhooed consumer spending and income numbers to the ISM to construction spending. Savings was negative for the eighth straight month, but that is according to the government's asinine method of calculating savings. None of your retirement holdings or investment holdings is considered savings unless some of them happen to be cash in a savings account. The real issue is the PCE deflator, and it was down from last month and still easily within the Fed's range or target, whatever you want to call it. Combined with construction spending that limped in compared to expectations and you had a picture that investors liked. Specifically, Bernanke is worried about what a declining housing market will do to the economy. The PCE deflator satisfies Bernanke's inflation 'targeting' side, and the weaker construction is further evidence of a slowing housing market.
That was enough to get buyers back in action. Oil was higher as well, rising to over $62/bbl even in the face of rising inventories. Seems that demand for gasoline jumped 2.4% the past month; what inventories cannot do for price, usage fills in. Even that, however, did not deter the rebound.
It was not as powerful as the Tuesday selling, but it was a good answer. NYSE volume was a bit lower and breadth was not as strong, but again, it was a good session. It was a sign that buyers were still ready to step in even after some volume selling by some big money on Tuesday. Fighting fire with fire. When the sellers could not continue the push lower, they started to cover, and that too helped drive prices back up. The buyers for once put the squeeze on the shorts. The key test comes ahead as NASDAQ and SP500 try to clear their recent resistance.
THE ECONOMY
January consumption costs soften.
As noted, spending once again exceeded savings according the government, but at least prices paid softened. Spending rose 0.9%, less than the 1.1% expected, but it still topped income that even surpassed expectations (0.7% versus 0.6% expected and 0.5% prior). Of course, if you add back in 401k's, IRA's, HSA's, and other stock and financial holdings and you get a vastly different picture. Think of it as a young worker who puts the maximum each paycheck into his company's 401k plan and gets matched by his company. He keeps some money in a checking account to cover expenses, but he squirrels the rest away for the future. At the end of the month he doesn't have a lot left over in his account. According to the government he is one of those non-savers, one of those spendthrifts eroding the fabric of American society. In reality, he is socking away a nice nest egg that he won't touch until he is 59.5 years old. By definition he is a saver as this account is for his future. Anyone's definition, that is, except the government's.
The real upshot of the spending and income report is the PCE deflator, that is, by how much the prices we pay for goods have to be adjusted to account for inflation. In January that rose 3.1% overall but 2% on the core. Year over year it fell to 1.8% versus 1.9% in December. The Fed's unspoken but well known range for this inflation indicator is 2% on the high end. The decline is in line with what inflation indicators showed in the second half of 2005, i.e. that the inflation cycle has peaked. It is just about time for the Fed to declare victory and leave for summer vacation.
ISM defies some regional weakness, beats expectations.
The 56.7 reading exceeded the 55.5 expected and January's 54.8 showing. All were expansionary regardless of which one it hit. As it turns out, there was just more expansion that first thought. That makes 33 straight monthly gains. New orders jumped to 61.9 from 58.0. Production, employment, and order backlogs all grew as well.
In line with the other inflation readings we are seeing, prices paid fell to 62.5 from 65 in January. Prices are no shrinking violet, but they are in decline somewhat, matching the picture seen in the overall inflation measures. The empirical evidence is mounting that the inflation cycle has peaked for this part of the economic expansion. ECRI's FIG (future inflation gauge) continues to show softening expectations for prices, and this is a very accurate indicator.
The report basically put on the best face it could given the current Fed tightening cycle. You want to see continued growth for the economy's and market's sake, but for the same reasons you don't want to see any price pressure because the Fed is still active. This report blended that nicely with drops in the right places and gains in the other. Truly diplomatic. If you were manipulating the data, this is how you would do it. Not suggesting that is going on, but simply that this is looking like a much needed mitigation in prices just at the right time.
Construction limps in at 0.2% in warm January, well off the high expectations.
That warm weather must have had the heavy equipment and workers putting in overtime in January. That was not the case. Expectations ran high, coming in at 1.1%. Divide by 5 and you are right on the money. Really it was not far off the mark when you look at the other data that came in. Housing starts lower, new and existing home sales lower. The data was stacking up for a slower month.
Residential construction still managed a 0.1% gain, but that was down from 0.9%. Other sectors lost steam as well, however, including public construction, rising just 0.2% versus the 1.3% December gain. Private construction managed 0.2%. Weaker across the board.
As noted, this weakness goes hand in hand with the notion that Bernanke is going to be a bit more dovish than the market attributed the past few weeks. The Fed funds futures contract had built in a pretty good percentage of a hike beyond May; now that is slipping away. March is still a sure thing and May is also pretty sure at this point. It would take a lot of slowing prior to then to get Bernanke to stop before 5%. Of course any significant slowdown would be preceded by a market breakdown. It is struggling but still holding its trend. If it holds and manages a breakout that would signal market faith in continuing economic expansion. As of right now it is not yet ready to confirm that.
THE MARKET
MARKET SENTIMENT
VIX: 11.54; -0.8
VXN: 15.49; -0.5
VXO: 10.77; -1.07
Put/Call Ratio (CBOE): 0.71; -0.2
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: +33.25 points (+1.46%) to close at 2314.64
Volume: 2.257B (+2.23%). Volume came on strong late and edged out the Tuesday selling. Fight a big fire with a bigger fire. The sellers were out Tuesday, dumping shares. When the buyers came in to find some bargains and the sellers could not keep the pressure on, they started to cover, adding to the rebound's strength. Now the big issue is whether the buying strength can continue as NASDAQ tries to clear the first and then second January high.
Up Volume: 1.82B (+1.203B)
Down Volume: 403M (-1.146B)
A/D and Hi/Lo: Advancers led 2.2 to 1. Upside breadth overpowered that of Tuesday. Stronger volume, stronger breadth. Hmmmm.
Previous Session: Decliners led 2.06 to 1
New Highs: 180 (+49)
New Lows: 37 (-4)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ gapped higher and never looked back. It tested the 10 day EMA (2288) on the low early on and then rallied into the close. On that close it cleared the late January intraday high by a nose. Cracked ice is cracked ice, but of course it will need to smash it thoroughly on its way to the January high (2333). That is still a pretty good piece away, but no problem if this kind of buying keeps up. Last night we said NASDAQ was in decent technical shape if you ignored the sellers. After the Wednesday action, you don't even have to do that because the move was more dominant, helped by SOX.
SOX (+4.33%) was impressive. After lying dormant at the 50 day EMA (521.35) for a week following its rather ugly decline, it erupted and led the market higher. It is a gnat's behind away from topping the last peak at 545.95 on its way to the late January closing high at 550.91. Chips across the board came to life after their pullbacks. Hell of a move, and it gave the market what it lacked for the prior four weeks when the chips were down.
SP500/NYSE
Stats: +10.58 points (+0.83%) to close at 1291.24
NYSE Volume: 1.634B (-7.48%). Volume could not match NASDAQ on the session, coming in lower and just below average. That is a disappointment; you want to see the whole market decide it is time to head north and show power doing it. We will see if its volume comes Thursday. The recent market action has shown NYSE and NASDAQ alternating volume strength.
A/D and Hi/Lo: Advancers led 2.47 to 1. With the small caps out in front with NASDAQ, breadth was powerful. Volume may not have quite been there but breadth looked solid once more.
Previous Session: Decliners led 2.16 to 1
New Highs: 175 (+73)
New Lows: 26 (-9)
The Chart: http://investmenthouse.com/cd/^gspc.html
If NYSE volume was just a bit stronger this move would have been golden. As with this market, however, it left a trail of doubt in its wake as SP500 advanced on that lower trade. SP500 is now right back up to try the January high again (1295). It answered the selling with a solid rebound, but the move is not complete until it delivers a convincing breakout through the prior high.
Large caps? We don't need no stinking large caps. That is what the small cap SP600 (1.41%) was suggesting again Wednesday as it reversed its Tuesday drop as well and surged to another new all-time closing high. Stellar performance once more but also on that lower NYSE volume. Still a strong leader. The small caps are getting a ton of play on the financial stations, however, now years into their run. That raises some caution here even though the index is hitting a new high. Nothing to worry about at this point.
DJ30
DJ30 rebounded from the 18 day EMA (11,005) where it landed Tuesday on stronger downside volume. The Wednesday rebound was on lower, below average volume as DJ30 lacked the punch of NASDAQ. It has held its breakout, however, and is still in solid position. The higher volume selling and lower volume rebound still warrants attention as DJ30 and SP500 try to move back through their recent highs (11,159 for DJ30). But for the NASDAQ move, this would look like a fairly weak response to the Tuesday selling.
Stats: +60.12 points (+0.55%) to close at 11053.53
Volume: 2.7M shares Wednesday versus 325M shares Tuesday. The lower volume rebound did not instill much confidence outside the NASDAQ. Tuesday was one downside distribution session after some good price/volume action, so it was not that ominous. Needs to improve as DJ30 continues the advance.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
The market gets a breather from the economic data Thursday with just initial jobless claims on the calendar. NASDAQ and SOX led a strong Wednesday rebound as money that had left those sectors the past three weeks returned with strength. With the major indices again testing key resistance levels, we want to see them continue to lead and take the indices to a breakout across the board. The market has been hindered by uneven or mixed performances. With SOX and NASDAQ rejoining the fray the odds took a dramatic turn from Tuesday.
Still, the action Wednesday continued its mixed behavior. All major indices were up but the strength of the NYSE move was questionable. Again, not everything moving in unison. It may have simply been a case of new money being put to work to start the month. Staying power will be the key, and with NASDAQ and SP500 still to break resistance, we will have a very good view of any building strength. Volume needs to return to NYSE as SP500 tries to make the breakout once more.
Wednesday did not completely reverse the Tuesday distribution, but it was a start. We are going to continue looking for stocks breaking higher through resistance or off of support as the market continues its breakout attempt. We have to see that volume come in across the board if this is more than a first of the month rebound.
Support and Resistance
NASDAQ: Closed at 2314.64
Resistance:
The late January high at 2314.36
2328 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:
2288 from December 2000 low.
2278 is December 2005 intraday high.
The 10 day EMA at 2288
The 18 day EMA at 2282
2273 is December 2005 closing high.
The 50 day EMA at 2267
The October 2005 up trendline at 2250
S&P 500: Closed at 1291.24
Resistance:
The January high at 1295
1297.57 is the recent February high.
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 1285
The 18 day EMA at 1282
The December highs at 1275 (intraday) and 1273 (closing)
The 50 day EMA at 1272
1264 from the December 2000 lows
The bottom of the November/December 2005 range at 1248
Dow: Closed at 11,053.53
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 11,042
The 18 day EMA at 11,005
10,985 is the March 2005 intraday high
10,965 from Q4 2000 and November/December 2005
The 50 day EMA at 10,907
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): 1.233M actual versus 1.270M expected and 1.298M prior (revised from 1.269M)
February 28
GDP second preliminary, Q4 (8:30): 1.6% actual versus 1.6% expected, 1.1% first iteration
GDP chain deflator, Q4 (8:30): 3.3% actual versus 3.0% expected, 3.0% prior.
Chicago PMI, February (10:00): 54.9 actual versus 58.2 expected, 58.5 prior.
Consumer confidence, February (10:00): 101.7 prior versus 104.0 expected, 106.8 prior.
Existing home sales, January (10:00): 6.56M actual versus 6.60M expected, 6.75M prior (revised from 106.3).
March 1
Personal income, January (8:30): 0.6% expected, 0.4% prior
Personal spending, January (8:30): 1.1% expected, 0.9% prior
Construction spending, January (10:00): 1.2% expected, 1.0% prior
ISM, February (10:00): 55.5 expected, 54.8 prior
Crude oil inventories (10:30): +1.121M
March 2
Initial jobless claims (8:30): 285K expected, 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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stock prices
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