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3/20/06 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts: EZPW
Buy alerts: NTES; BWNG; AMLN; GPN
Trailing stops: None issued
Stop alerts: ACAD
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:
- NYSE indices start a pretty nice 'pullback,' techs show modest leadership.
- Leading Economic Indicators fall less than expected, January gain sliced in half.
- Field notes on the housing market.
- Market set for a test, but sellers thus far not wanting to step in front of the market.
A slow post-expiration session is a good post-expiration session.
Expiration is often an anomaly, and Friday's quadruple expiration on huge volume was no exception. The market was showing weakness Thursday, ready to test after a nice though lighter volume rally. Getting past expiration was an important step. Post-expiration sessions can be rocky and can give the sellers an entr e, particularly in a lower volume rally.
Sellers were not ready to get in front of the market, however. Stocks received a bit of help from oil that sold off fairly aggressively (61.96, -2.24/bbl), so there was even less pressure from sellers. They started higher across the board, but as we expected, the move struggled to hold. Techs led wire to wire, managing a decent though modest lower volume gain. SOX recovered from negative to positive, but its move did not change much for that index. The small caps also managed a very modest gain, the only NYSE index to do so. SP500 and DJ30 posted very modest losses on light volume as well.
Basically the indices went right on about their business as if Friday did not happen, and that is good action. Very modest pullbacks for the large caps shows no real willingness to sell stocks off. Techs were up, but we don't want to pin any more significance on that than the large caps being down; the changes were just not that significant. What was significant was the nice, easy action as the rally stalls out and begins a test. No jump in selling, just some tired buyers not ready to add a lot of new shares after this run. Downside breadth was modest, volume was significantly lower, even throwing out the Friday expiration trade. In short, a good start to a test to the low volume rise.
It is just the start. DJ30, SP500, SP600 all showed dojis on their candlestick charts, and that indicates a move is tired and needs some consolidation. Monday the consolidation occurred mainly running in place. There was still some solid upside breaks here and there from leaders, but the majority of the action was maintaining the status quo. As noted, that left the indices in position to test back further. The NYSE indices showed dojis, NASDAQ did not come close to threatening the top of its range, and you can hardly call the SOX gain a rebound. That leaves the NYSE indices still in need of a further test or consolidation, NASDAQ still trying to find the buyers to carry it out of its range, and SOX looking ready to resume its selling. Those latter two remain the rally's weakest links heading into the test. Monday was a positive start as the market weathered expiration and picked up where it left off. Now the real test begins.
THE ECONOMY
Leading economic indicators show some erosion after a solid trend higher.
February indicators fell 0.2%, a bit better than the -0.3% expected. That marked the first decline in five months. Not a major issue; you never want to draw too much upon one data point, particularly one that disagrees with the prevailing trend. January's gains, however, were sliced in half (+0.5% versus 1.1% previously reported), adding a bit more weight to the notion that there is some slowing down the road. Indeed, this slowing indication is more in line with ECRI, a leading indicators index that is historically more accurate.
Both show continued growth but ECRI has suggested for a couple of months that the growth is peaking. That does not mean a sharp slide lower; any expansion will suffer a downturn or two or more as it cycles higher. As an expansion grows older, however, its ability to rebound decreases. If you put too much pressure on it, an older expansion will give up the ghost as its tank runs lower. That is the danger of the Fed; it tends to increase its pressure at the wrong time because it doesn't feel its prior hikes have been effective enough. It is strange how a body designed supposedly of those making economics their life study consistently overestimates the economy's strength after a couple of years of saddling it with rate hikes.
That is what makes the coming FOMC meetings so important. The market is expecting the Fed to lighten up after one, maybe two more rate hikes. It spent last week building that in. If the Fed once again miscalculates the impact of its actions on rates, it will go down that same old road it so often travels, and of course, the market will suffer for it. Thus the LEI is just another indication that the Fed should slow down and take heed of what are some modestly weaker economic reports that suggest after 3 years the economy should not be dumped on indefinitely.
Hot housing markets continue to show downside pressure.
It is no secret the housing market has cooled down the past year though there is still a lot of debate from every corner about just how much it has slowed. There are those '2000-esque' comments such as 'slowing but still strong' describing the housing market. That is always a curious statement. Rarely do slowdowns occur overnight; most serious declines start slowing and then implode well down the road.
That only underscores the need to obtain data from the source versus the filter of the government information collectors. We have talked with buyers, sellers and real estate professionals in several cities. What we are finding is no surprise: hot markets are cooling despite much rebuttal you hear from the official party line on the financial and other stations. For example, Phoenix, Arizona sports some of the hottest zip codes in the housing market over the past several years. That market, however, is turning from a sellers to a buyers market. Buyers are routinely 'low-balling' offers well below the asking price. We are also hearing cases where buyers are willing to walk on a contract and give up their earnest money for another house where they get a significantly better deal. Some have had 2 and even 3 contracts slip through because the buyer found greener pastures.
Similar stories though not to that extent are coming in from other areas considered hot markets. It is also a similar theme from other booms: the prices cannot continue higher indefinitely. They have to take breathers. It does not mean the market has rolled over; a housing market can take a breather for a year or so and then resume the move. It seems catastrophic to the owners and tends to create the 'lemming effect' that exacerbates the decline in the short run. In Phoenix, for example, word is out that the market is turning. In one neighborhood surveyed, two houses were for sale last month. This month over 15 are on the market as those somewhat thinking about selling rush to the market to see if they can take their gain before the market cools. Thus some weakness becomes widespread over the short term. As with other markets, some short term weakness in housing can be turned into longer term value loss if the overall economy is pushed down too hard.
THE MARKET
MARKET SENTIMENT
VIX: 11.79; -0.33
VXN: 15.93; +0.57
VXO: 11.04; -0.15
Put/Call Ratio (CBOE): 0.88; +0.09. After hitting 0.3 last week for a session ahead of expiration, put activity has once again returned toward the high end of the range.
Bulls versus Bears:
While individual investor sentiment is getting bullish, investment advisor sentiment continues to turn more bearish. That is a continued positive. They continue to move further past those levels that marked bottoms and presaged market rallies in May and October 2005.
Bulls: 42.3%. Bulls continue to fall after holding steady the prior two weeks. From 60.4% at the start of 2006, the fall was hard in February, and is now leveling off (48.9% to 45.3% to 42.6%). It has undercut the two prior lows that helped spark rallies in May and October.
Bears: 33%. Another nice bump higher from 31.3%. 30.8% from 29.5% from 27.7% from 25.5%. It started this move just above 20%, the threshold level. Above 20% is considered better while below 20% is considered bearish for the market. Bears have surpassed the readings from the two prior market bottoms in May and October 2005 (30% and 29.2%, respectively).
NASDAQ
Stats: +7.63 points (+0.33%) to close at 2314.11
Volume: 2.003B (-24.23%). Volume of course fell back following a very high quadruple expiration session, but it also slipped below average as NASDAQ tried to punch higher. No real chance of an important move out of the top of the ranged given the modest trade. Basically no volume willing to buy into enough tech to drive NASDAQ out of or even threaten the top of its range.
Up Volume: 1.264B (-311M)
Down Volume: 684M (-346M). Decent up to down volume.
A/D and Hi/Lo: Advancers led 1.02 to 1. Very modest advance, not really in line even with the modest point gain.
Previous Session: Advancers led 1.1 to 1
New Highs: 193 (+8). Remains very low even as NASDAQ tests near its former high.
New Lows: 39 (-9)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ gapped higher then tested, even slightly undercut, the Friday close. A nice midmorning rally to the afternoon, and then fought off an effort to push it lower, rebounding to the close. It did not threaten the top of the range (2316 to 2325). If it did it certainly did not have the volume to push through as traded dropped off below average and well below the Wednesday and Thursday volume levels. Thursday NASDAQ gapped higher and rolled over. It survived Friday and then acted Monday as if nothing happened Thursday. The pattern, however, still suggests a pullback, particularly with the NYSE indices showing they need a test of last week's rally. That would set it up better as well, allowing NASDAQ to move laterally with a test of the 18 day EMA (2289) to allow it to shake out some sellers and make a higher low for a point to try the high again. That presupposes the Thursday reversal selling volume does not rear its head once more.
SOX (+0.37%) led the market, but it did not do much to change its relative position. It broke sharply lower Thursday after a lower volume test of the 50 day EMA (516.82) breach. The Monday action closed well off its session high (501.82), and as of the close any upside ahead looks simply like another test of that breach, maybe making it to the 10 day EMA (506.49; closed at 498.21) before trying to resume what is shaping up to be a downtrend after that break lower from its February trading range. That could be a serious drag on NASDAQ and thus hamper the NYSE attempt to make a successful test.
SP500/NYSE
Stats: -2.17 points (-0.17%) to close at 1305.08
NYSE Volume: 1.415B (-29.37%). Volume tanked not only from the high level on Friday's expiration but when compared to even the below average volume ahead of last Friday. Given the modest topping action that is a very good sign as it indicates no one ready to dump the shares purchased on the rally.
A/D and Hi/Lo: Decliners led 1.28 to 1. Very modest, mirroring the Friday levels on that modest price gain.
Previous Session: Advancers led 1.23 to 1
New Highs: 210 (-63). Needs to improve significantly after the NYSE indices make their test.
New Lows: 39 (+12)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 continued to work laterally Monday, holding last week's breakout from its January to February range. The return to below average volume basically puts the index in the mode it was last week though this time the volume was on a downside session, and that is something you like to see. It told us that no sellers were running in to sell the index after its upside move has lost some momentum. It showed a loose doji on the candlestick chart, and that is an indication of a loss of momentum and often precedes a fade. We are looking for SP500 to make the test of this break higher, and possible support points are 1300 (no real price support, but an important psychological barrier) and then the top of the range at 1284 or the 10 day EMA at 1296. Want to see continued low volume as it makes this test.
SP600 (+0.03%) showed a doji on the candlestick chart as well as it too shows slowing momentum after its run from the 50 day EMA (373.10) and the up trendline (now at 374). This channel has pretty much defined its moves the past 4.5 months, and the price/volume action here at the top of the range (it hit that point on the high at 386) suggests it is setting up to test lower again as it maintains its solid trend.
DJ30
DJ30 showed its own doji Monday as well, and with the very low, below average trade, it looks as if it has run out of gas and needs to pause as well and test last week's run that took DJ30 above its late February high (11,137 closing). Volume was weak on the upside similar to SP500, but the Monday action revealed no sellers jumping in to sell the index lower. Thus DJ30 looks ready to make its pullback toward that late February high or possibly the 10 day EMA (11,166) along the way.
Stats: -5.12 points (-0.05%) to close at 11274.53
Volume: 247M shares Monday versus 480M shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
After hours ORCL beat the street on earnings (0.19 versus 0.18), but was light on revenues ($3.47B versus 3.5B expected). It was lower after hours and QQQQ was lower as well. No major sell off in the other issues, however. Bernanke made one of his few speeches after hours as well, basically sticking with the line that a flat to modestly inverted yield curve as seen of late does not signal economic slowdown to come. As of this writing the Q&A was just starting, but the skinny is that if rates stay low despite the Fed's hikes because of what Bernanke sees as foreign buying of treasuries, that acts as continued stimulus for the economy and thus the need for further rate hikes ("monetary restraint" as Bernanke put it).
That is not necessarily what the market wants to hear, especially given that the low volume rally last week was purportedly based upon the notion the Fed was close to being through. This is the market's weakness; if what you rely on to rally is kicked out from under you, then you have to find another reason to rally. We will have to see how the futures trade tomorrow on this speech to see if the market perceives Bernanke as kicking out the support or reason for the recent rally. It is something we have been concerned about, particularly with the low volume rally that got the NYSE indices where they are today.
Thus we continue to expect a test, but the question is how much and how virile of a test given Bernanke's speech. To now sellers were reluctant at best and that is what we want to see continue as the NYSE indices and NASDAQ test. Bernanke's speech may embolden them to try a selling push Tuesday and turn NASDAQ lower and SOX back down from its weak bounce to end the week.
Monday was not bad with the lower volume and orderly easing on the NYSE indices. We like that the sellers remained at bay even after expiration was over. We want to see more of that same action Tuesday and Wednesday as they test last weeks break higher. Once more an important period as the rally volume was disappointing. There are still strong leaders and the market overall is holding up well despite the low volume. We are still skeptical and thus will remain in a more cautious mood. As always, however, we never presuppose we know more than the market, and if we see strong moves from strong stocks, we are not going to ignore them.
Support and Resistance
NASDAQ: Closed at 2314.11
Resistance:
The recent high at 2325
2328 from the May 2001 peak
The January high at 2333
2477 is the January 1999 peak
2523 from the December 2000 low
3015 is the December 2000 peak and the October 2000 low
Support:
2288 from December 2000 low.
The 10 day EMA at 2294
The 18 day EMA at 2289
2278 is December 2005 intraday high.
The 50 day EMA at 2276
2273 is December 2005 closing high.
A minor peak at 2249 is still holding.
2240 is closing low in recent range.
2218 from August 2005 peak
S&P 500: Closed at 1305.08
Resistance:
1315 is the May and May 2001 peaks
1324 to 1329 from the October 2000 lows.
1358 to 1362 mark a series of peaks from April 1999 to August 1999 high and the February 2002 low at 1360.
1371 to 1373 is the December 2000 peak and the January 2001 peak
Support:
1297.57 is the recent February high.
The 10 day EMA at 1296
The January high at 1295
The late January peak at 1285
The 18 day EMA at 1281
The 50 day EMA at 1280
The December highs at 1275 (intraday) and 1273 (closing)
1264 from the December 2000 lows
1254 is the February low
1248 to 1250 is the bottom of the November/December 2005 range
Dow: Closed at 11,274.53
Resistance:
11,350 from the May 2001 peak.
11,401 from the September 2000 peak.
11,425 from April 2000 peak
Support:
11,176 - 11,186 from April 2000
The 10 day EMA at 11,166
11,159 is the February high.
The 18 day EMA at 11,111
11,044 is the January high.
10,985 is the March 2005 intraday high
The 50 day EMA at 10,991
10,965 from Q4 2000 and November/December 2005
10,931 is the November 2005 high
10,890 is the December 2005 closing high.
10,868 is the December 2004 high
10,705 from the July/August 2005 peaks to 10,682 that is the September 2005 high
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
March 20
Leading Economic Indicators, February (10:00): -0.2% actual versus -0.3% expected, 0.5% prior (revised from 1.1%).
March 21
PPI, February (8:30): -0.2% expected, 0.3% prior.
Core PPI (8:30): 0.1% expected, 0.4% prior
March 22
Crude oil inventories (10:30): +4.836M prior
March 23
Initial jobless claims (8:30): 305K expected, 309K prior
Existing home sales, February (10:00): 6.5M expected, 6.56M prior
Durable goods orders, February (8:30): 1.3% expected, -9.9% prior
New home sales, February (10:00): 1.21M expected, 1.233M prior
End part 1 of 3
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