|
|
us stock market, stock watch
* * * *
11/19/01 Technical Traders Report
* * *
Technical Traders Report Subscribers:
MARKET ALERT SERVICE
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- Market refuses to sell back as upward momentum and positive sentiment keep buyers buying. Why fight it, just ride it.
- Semiconductors not following right now: are they ahead of the market or are they following?
- Oh goody. A Bull market on the Dow.
- A historical look at where we are.
- Subscriber Questions
Once again stocks recover and rally higher.
The market has a lot of reasons to pullback, but it is not doing it. After 18 months of hammering, the buyers have returned and are not being dissuaded for now. As we noted over the weekend, sentiment indicators are plunging, giving us a heads up that all is not roses. At the same time, however, we noted that price and volume action is still mostly healthy again, and while the sentiment indicators are keeping us alert, we won't cut and run based on them alone, particularly when price and volume are holding up.
Today the index did what it has done time and again this past month: open higher, sell back, and then rally to the close. Buyers were there at the open, sellers tried to push it down, but buyers stepped back in when opportunity presented. That continues the bullish intraday price action that accompanies the solid price/volume action, and it is another sign of the bullish momentum in the market right now.
What do we do? Well, we know there may be a problem ahead, but unlike the bears that sat out 5 years of the bull run, we are not waiting for the sky to fall. We are going about our business, buying stocks when they present upside opportunities, selling them or shorting them when they show downside action. For example, we have been eyeing BRCD the past several days with a hungry eye, and today it made a solid move out of its lateral pattern. Great stock, great pattern, great move equals a buy. On the other hand, we saw the SOX show some selling signs last week and we entered short positions. Despite the rise in the Nasdaq, the SOX is still falling. It is making a nice pullback that may lead to a great jump, but it is also close to our target of 500 on our puts. It hits that and we are most likely getting out of our positions and then looking for some upside if it is there. Riskier without an overall market pullback, but if that is what the market is giving, we will take it.
Speaking of semiconductors, are they leaders or followers?
As noted, despite the continued climb in the indexes, the semiconductors have been selling off the past four sessions. It has not been anything severe. Indeed, much as with the overall market, the index rallied back off of its lows each session even though it finished negative for the day. Why is it selling? Is it ahead of the market or behind it and ready to rally?
Look at the returns. From the September low to the high last Wednesday, the SOX was up 61%. Even after four selling sessions it is still up 52.5%. The Nasdaq at today's close (the high off of the September low) is up 39.5%. As usual, the semiconductors have led the move up off the bottom despite the abysmal analyst outlook and downgrades and negative statements during that climb. Why are semiconductors the usual leaders in tech? Because they are the building blocks of almost anything mechanical in nature. If there is a recovery or is going to be a recovery in the economy, semiconductors will be needed in greater quantity. Prices will rise accordingly (and we have indeed just recently seen rising DRAM prices; imagine that). Thus, semiconductors are leaders in the market, not followers.
So, are semiconductors a harbinger of selling to come? After all, they are down the last four sessions while the market continues to rise. Again, the selling has not been severe but instead a very orderly, controlled decline toward support at 500. They have had a stronger move off the bottom and were at their upper channel line ahead of the other indexes. They were due for a pullback, but are getting close to yet another move higher. This is exactly what they have done most of the rally: looked as if they were suffering while the rest of the market was doing well and then racing ahead faster than the market. That is exactly what is going on: its upside moves are fast and furious, easily outpacing the overall market. Then it consolidates as the rest of the market continues on, only to blow out again and race past the market. Thus, it rallies faster and pulls back quicker after those runs. That is what we seeing right now, with the semiconductors already taking a breather as the rest of the market moves up as the rally continues to broaden. The Nasdaq may hit 2000 on this run before it falters. If the semiconductors bounce Tuesday or Wednesday, it could get there fast.
Yippee. A bull market.
Over the weekend we wrote about the conversion of the bears and how that has put us on alert for selling. Again, we are not stepping out of the market by any means as price and volume action look solid. We are ready to exit short term positions, however, if they hit our targets and bounce down or price/volume action reverses.
That is why we view today's big story of the Dow in a bull market with even more skepticism. Using Mickey Mouse definitions, a 20% rise in the Dow off the bottom means a bull market. Why not all of the same hoopla when the Nasdaq blew past a 20% gain off the bottom? Because it was the tech sector, and for months we have heard that the techs were dead, that event passed without any accolades. At the time sentiment indicators were very high, showing more nervousness; no one on the tube had the cajones to call the Nasdaq in a new bull market. Now that the Dow has joined the other indexes with 20% plus gains and everyone is thinking things are in good shape, it is fashionable to take note of the move. It means so little technically, but it means a lot from a sentiment standpoint. It is another indication that market sentiment is getting complacent on this 45% rally.
A historical look.
But let's not get tunnel vision on the sentiment indicators. They are secondary to price and volume, and p/v is doing fine right now on the Nasdaq. There are several historical trends to look at right now that could keep the rally running without a major pullback (not a minor one) for quite some time.
As anticipated in our newsletters over the past couple of months, the war effort is going much better than expected. Back in 1991 in the Gulf War, when news came out that the war was going very well, the market took off on the news after suffering in the last quarter of 1991. It ran up 42% almost unabated in three months. It was also a time when the market was starting to factor in better times in a slowing U.S. economy.
Then in 1998 during the Russian meltdown and the Asian crisis, the Fed cut rates and injected massive stimulus into the system (money, liquidity), and that set off a rally out of the October low where the Nasdaq moved 86% (from 1357 to 2533) in 4 months.
Then the granddaddy of them all, the run out of the October 1999 low when again the Fed injected massive liquidity into the system (no rate cuts, however) ahead of Y2K. The Nasdaq ran 95% (2623 to 5132) in 4.5 months.
Sound familiar? There are many similarities to these events. As we have discussed since August, the economy has been and is improving given the rate cuts, the previous tax cuts, the elimination of the 30 year bond, and the promise of useful economic stimulus. These mirror the 1991-1992 situation with the Gulf War. The massive injections of liquidity and rate cuts are similar to 1998. The massive liquidity also mirrors 1999.
The results? The Nasdaq has now run 39.5% in two months. Yes there is a difference: an 18 month bear market and a supposed technology bubble. These have bears still fussing over the future. But remember: bears always fuss over the future. It just so happens that we finally had a bear market (they are inevitable) and they were able to say 'see, I told you so.' Missing that big run out of the October 1998 bottom to march 2000 was a 378% miss. Timing is everything.
In any event, with the long bear market, massive liquidity, rate cuts, stimulus, and holiday season, the markets are rallying, and as long as buyers, big institutional buyers, outnumber sellers, the market can continue to rise regardless of what the bears say. It will give us interim pullbacks as usual, but it does not mean it is going to tank back down to the lows. We are not in the habit of fighting what the primary indicators are telling us despite our gut feelings, the sentiment indicators, and especially the analysts.
THE MARKET
Enthusiasm continues as the indexes opened higher, tested the move, and then rallied to the highs to finish the session. Volume was higher on the Nasdaq, another positive on this strongest of the indexes, while it was lower on the NYSE. Moderate accumulation on the Nasdaq, not on the Dow and S&P. The indexes have still run far and have a big test immediately ahead. We would be surprised if we did not get a pullback at that point, but that kind of surprise is pleasant. What we need to do is continue to buy at the right time and not chase stocks that have already made the breakout move and have rallied up off that breakout; that way you avoid getting in with an already overextended position that will hurt you on an inevitable pullback.
VIX: 25.64; -1.53. Volatility continues its march lower toward the summer doldrums levels (20 to 22). Again, this drop gives us a warning flag that the move may stall at resistance, but it is not what we base our buys and sells off of. Price/volume action has been good, but it was down today on the NYSE. For perspective as to where it is now, volatility ranged from 20 to 22 during the summer (very low, very complacent), and then spiked over 55 when the market re-opened after September 11. Since then it has ranged from 28.19 to 38.
VXN: 50.83; -4.21. This volatility indicator is also tanking toward summertime levels as the Nasdaq continues its march higher. Unlike the NYSE, Nasdaq volume was higher on the gain, so price/volume action is still solid. This gives us a heads up to watch for resistance here and at 2000, but it is not a sell signal. For perspective, in the summer it ranged from 43 to 47 on the lows. After the re-open it was up to 93 intraday, and has since ranged from 55 to 70. Another thing to consider; volatility levels back in January through March 2000 traded in a range from 55 to 60 before the Nasdaq's dive.
Put/Call Ratio (CBOE): 0.53; +0.03. Rose slightly on the session's up and down action, but not much of a gain. It is still just above the 0.40 level that can signal market complacency. Again, this is not a sell signal, but it is a warning flag to look for cracks in the primary indicator of price and volume. Again, the Nasdaq was up on stronger volume while the Dow and S&P rose on weaker volume. The former is good, the latter, not so good.
Nasdaq
Refused to sell off with buyers coming back on when the initial rally went flat. Volume rose to almost average, not bad on the first day of a holiday week. A very nice start for the week out of that flat consolidation.
Stats: +35.84 (+1.9%) to close at 1934.42.
Volume: 1.926 billion shares (+12.4%). Volume rose and slid in right at average, something very good for a Monday leading off a shortened holiday weekend. Volume is usually light as fund managers leave early, but this year we have the feeling they wont be leaving so early. Good but not great price/volume action, and it again indicates some accumulation ongoing. Up volume led 1.473 billion to 428 million downside shares.
A/D and Hi/Lo: Advancing issues improved to 1.56 to 1 (3:2) after a 1.19 to 1 margin Friday. New highs rose to 73 (+13) as new lows fell to 27 (-5).
The Chart: http://www.investmenthouse.com/cd/$compq.html
Broke out of that tight consolidation today, the second such breakout in two weeks. Volume was up and average, good for a Monday. The index is now at some resistance at 1934 to 1940, and then the 200 day MVA at 1984.08. The upper channel is just below 2000. This is a lot of resistance in a narrow range, and the Nasdaq has its work cut out for it. With today's move it appears it is going to try 2000. While we doubt it will make it through on this move, we are willing to ride it to that level and let it show us it is not. Betting against the Nasdaq has been a losing proposition since late September.
Dow/NYSE
The Dow is on a mission, and that mission appears to be crossing 10,000. It is breaking above its upper channel in that quest, even as volume falls lower. That puts some upside limitations on the move given the resistance ahead.
Stats: +109.47 (+1.1%) to close at 9976.46.
NYSE Volume: 1.287 billion shares (-5.8%). Falling back further on today's gain, we would not have been surprised by the action but for the Nasdaq's gain on stronger volume. This does not give the index much strength on this move over its upper channel line. 959 million upside shares to 323 million downside shares.
A/D and Hi/Lo: Advancers stretched their lead to 1.68 to 1 (1.18 to 1 Friday). New highs jumped to 98 (+27) while new lows held steady at 24 (0).
The Chart: http://www.investmenthouse.com/cd/$indu.html
A quick sidestep and then a sharp jump higher to close on the session high after pulling back intraday. It was not much of a consolidation, and the move pushes it over its upper channel as it heads toward resistance at 9992 and then 10,200 (the 200 day MVA is at 10,199.03. Lots of resistance and not a lot of volume on this move. Still, during holiday seasons (unlike last Thanksgiving with the election gyrations) tend to see the market rise when there is no bad news and there has been a lot of stimulus injected. Thus, even without big volume, we could see the Dow rise over 10,000 and move up to 10,200 this week. At that point we would watch for some retrenching next week.
S&P 500: Moved up out of its three-day lateral consolidation without further testing, clearing first resistance at 1050, but with no volume. Thus it has not really cleared this level as it moves toward the next level at the upper channel at 1170 and the 200 day MVA at 1187.15. This has the feel of a holiday rally as there has been good news from the war, decent news from the economy, and the prospect that Bin Laden's capture/death may be near. As with the Dow, after a rise up to these resistance points, if no volume moves in next week can give us a pullback. But, as we noted earlier, we will ride the move will it is here and enjoy it.
Stats: +12.41 points (+1.1%) to close at 1151.06.
Volume: NYSE volume fell further today, falling below average on the gain (1.287 billion shares (-5.8%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Today was a nice start to the week with the indexes taking on resistance with some decent volume on the Nasdaq. It has the look and feel of a holiday rally, and even without much volume we may get a rally up to the top resistance levels this week before a pullback next week. The sentiment indicators are showing some warning signs and there is some real resistance ahead of a market that has rallied a long way without much of a rest. The safe call is to say a pullback is coming. We have been expecting one and still do (didn't we say something about pullbacks being inevitable?), but only the SOX is showing any pullback the past several sessions. We are ready for one, but it appears that the indexes want to run up to test all of the resistance before they pull back.
In short, the indexes continue to rise in the absence of news, a bullish switch from the sinking on no news during the bear market. They will inevitably consolidate those moves, and we are seeing the typical signs that is in the works. It could happen this week or it could happen next week after Thanksgiving. Either way we will be ready to take some profits on short term option and stock positions and sell calls on many stock positions if it starts. Why sell calls versus the stock? Because we feel many of the stocks are doing quite well and a pullback will most likely be less than violent if the price/volume action remains solid. We can get cash money in our accounts on selling the calls at the start of selling (preferably when resistance is hit and the stocks start to fall), buy the calls back when the selling is over, and let the stock rally back up for us free and clear. We keep the net in our account to buy more stock, pay bills, whatever.
Tomorrow the leading economic indicators are released, and they look 6 months into the future. They are anticipated to move from fractionally negative to flat. We are also seeing more companies say business is firming. SMTC did it tonight saying sales were growing sequentially. PSFT said it is on track for Q4. Those were met positively. The good news continues.
Also, much as with the better than expected news on the war (though we had anticipated this was much like the Gulf War in the faster than expected result), we anticipate good news regarding Bin Laden before too long. The scenario is prime for his capture/death. First, the U.S. is now saying the noose is closing, etc. That is the old game of expectations management. Our leaders would not start talking about it unless they knew something. Second, there is more money on his head. That combined with the fact that Taliban troops want to surrender but are being shot for trying to do so by Al Qaeda soldiers is going to change the picture. If they try to surrender they are shot; if they don't, they get killed by the U.S. The solution? Start shooting back at the non-Afghan Al Qaeda and/or get Bin Laden in order to collect the millions on his head. When the announcement is made in the next week or two, the market will pop. Perhaps it will propel it through the resistance levels; then we will have to see if they hold.
For now the indexes appear ready to continue to move up in the absence of bad news. We are ready for them to pullback at resistance and consolidate once again. That may happen this week or next.
Support and Resistance
Nasdaq: Closed at 1934.42.
Resistance: 1930 to 1940. The 200 day MVA is at 1984.08 and the upper channel is just below 2000 at 1995.
Support: The upper channel and the 18 day MVA are at 1823.29. Again, that is pretty solid support if the index decides to sell more.
S&P 500: Closed at 1151.06.
Resistance: 1150 was cleared today, but not definitively as volume was lower and below average on the move. The upper channel is at 1170. The 200 day MVA is at 1187.15.
Support: 1124 (prior consolidations). Then 1103 and the 50 day MVA at 1107.26. The up trendline is just below the 50 day at 1105.
Dow: Closed at 9976.46.
Resistance: The upper channel is at 9985, right below resistance from 9992 that acted as support and resistance in the past. After that, 10,200 (the 50 day MVA is at 10,199.03.
Support: Tested 9870 on the low today. This was potential resistance, and the fact that it held on the low makes it possible support. 9725 is possible, but not much is there. 9500 is the first real level of support. The 50 day MVA is at 9532.40 and the 18 day MVA is at 9604.08. There is a lot of support at the 9500 level. The up trendline is at 9400.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
11-19-01
Housing Starts, October (8:30): 1.60 M actual versus 1.515M expected and 1.574M prior.
Building Permits, October (8:30): 1.473 actual versus 1.49M expected and 1.528M prior (revised from 1.524M).
11-20-01
Trade Balance, September (8:30): -$26.0B versus -$27.1B prior.
Leading Indicators, October (10:00): 0.0% versus -0.5% prior.
11-21-01
Initial Claims, 11/17 (8:30): 444K versus 444K prior.
Mich. Sentiment-Rev., November (9:45): 83.5 versus 83.5 prior.
Treasury Budget, October (14:00): -8.7B versus -11.3B prior.
SUBSCRIBER QUESTIONS
Q1: How do you see "tax-loss selling" impacting the market over the coming weeks?
Q2: Someone told me that the first 2 weeks in December the Mutual Funds dump a lot of their little companies and window dress for the last 2 weeks where they buy the GM's and other big companies to make their funds look good for their customers? They then sell a lot of the big companies and go into the little ones again in January? What about puts for the first 2 weeks in December and calls for the last 2 weeks?
A: There are several theories following stocks this time of the year. One maxim is to buy stocks in October and sell in May. Another is tax loss selling. Another is window dressing for year end reports. And then there is the January effect where small stocks tend to outperform the big caps. Last year there were a lot of factors working against the market, e.g., very contentious national election, a realization that the economy was really starting to tank, rapidly dropping corporate earnings. Tax selling took a lot of the blame because (1) no one wanted to say the election had anything to do with what was going on, (2) the economists would not give up on the rosy outlook for the future (remember some said there would need to be rate hikes in January), and (3) no one wanted to doubt the Fed. The selling had many faces and many underlying reasons behind it, but tax selling got the blame because most market followers were unwilling to admit the real problems underlying why institutions were dumping shares: they felt they were going to go even lower.
End Part 1 of 2
|
us stock market
stock watch
|
