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11/21/01 Technical Traders Report
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Technical Traders Report Subscribers:
HAPPY THANKSGIVING!!
Well, this Thanksgiving Eve finds me with the comforts of family and home as opposed to the hospital intensive care unit where we spent last Thanksgiving with my oldest son. All turned out well last year despite some very frightening hours. In the intervening 12 months we have all seen so much happen. Most of the headlines were not good news whether it was the market, the economy, the jobs outlook, or the terrorist attack. They all led to a lot of individual and collective suffering across the country that is still occurring. Despite it all, we have hung together, and with our sometimes arduous and contentious governing process along with our deep love for this country, we have been doing the right things to bring the prosperity back and to heal the wounds the year has brought. This year was not as carefree as the prior 10 years, but it did not stop us, did not end our zeal for innovation, invention, and life. It was not fun, but we will and already are emerging from this period, a bit wiser and a bit bruised, but also much stronger, more resolute, and fully confident that we will continue to lead the world in industry, prosperity, compassion, and freedom. That is an awful lot to be thankful for.
Because of the shortened session on Friday, we are doing a 'best plays' report tonight.
MARKET ALERT SERVICE
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- Selling continues, but it looks as if the chips, the sellers over the prior sessions, are ready to lead the rebound back up as they hold at the 50 day MVA.
- Hints today of better war news has the after hours traders abuzz, and we are on the ready for Friday even with the short session.
- Economic continues to improve with jobless claims down 4 weeks running and continuing claims falling. My how fast perspectives change.
- Subscriber Questions
Indexes pull back as expected, but chips lead a late recovery.
After fleeing Tuesday, buyers entered the market after more early selling, moving the three major indexes off their lows but not into positive territory. Bullish intraday price action, and the lower volume on the down session is what you want to see.
The other big index, the SOX, managed to turn all the way around and close positive. The difference? The SOX started selling off six sessions earlier, moving gradually lower until Tuesday when it suffered a harsher drop. That appears to have cleared out the system enough, and today it caught support at its up trendline just below its 50 day MVA (430.39) and rallied positive from there. Other big chip names that again had sold back or were looking to sell more turned it around once again. Many look just as ready to bounce as the SOX (of course; they make up the SOX). The hold above the 50 day MVA and the up trendline was what we were looking for on the SOX puts as the signal to close them out today.
As noted in past reports, the SOX tends to lead the moves in either direction. It sold off for 5 straight sessions while the Nasdaq and the other guys continued to rise. Now it looks ready to rebound from an important level, the 50 day MVA. We were looking for a covered call on BRCM and some others, but they never gave the signal. If we get a bounce higher, we won't mind.
Does that mean the Dow, S&P and Nasdaq bounce up with it? Well, the Dow and S&P rose while the SOX sold down the last week, and the Nasdaq, though not as strong without one of its key sectors, still trended up until Tuesday. Those indexes were selling Tuesday and today, and unless there is some very positive war news, they look to test at least their 18 day MVA's, with the S&P and Dow maybe testing close to the 50 day MVA where their up trendlines are. The Nasdaq is right there, coming close to its 18 day MVA and up trendline on today's low.
After hours talk of war progress has fund managers staying at work.
We heard that many brokerages were telling their people to be ready on Friday given some news of surrender coming out of Afghanistan. As we have been writing, we think Bin Laden is very close to his end. That news could propel the market higher in a hurry. It could break the indexes over some important resistance. That combined with the improving economic news would be powerful medicine for the market.
What stocks?
Bonds have been getting slaughtered on the belief that the U.S. economy is ready or is actually recovering. Jobless claims fell for the fourth straight week, and continuing claims fell 36,0000, the first drop in a long, long time. Michigan sentiment was measured at 83.9, up from 83.5 prior. The LEI were positive, retail sales are looking stronger than expected (e.g., BBY, WMT and others are selling a lot of goods they were not expecting to sell). All of this is finally starting to turn the tide of perception to one that yes there will be a recovery.
The bond market plunge as a result of perceived improved economic conditions will also act to mitigate the return to prosperity. Why? Well, there was going to be a boom in refinancing due to the elimination of the 30 year bond. A sharp rally has been skewered. Mortgage rates plummeted, but now are significantly higher than they were before the announcement of the 30 year's elimination. That puts on hold that unlocking of capital based on refinancing. It also puts a damper on new and existing home sales. The list goes on. We did not expect such a massive tanking in the bond market, and in the contrary way that markets act, the new perception of imminent recovery may work, e.g., through a mechanism such as the bond market, to forestall the recovery.
That does not mean we don't think a recovery is coming; we were writing of the signs back in August and September and then even after the attack. It is coming, but interest rates rising on their own is a governor on the rise.
With good war news and a recovering (but not high flying) economy, what stocks would we look for near term? Chips, retail (there are many kinds, e.g., BBY, LOW, BBBY, WMT, AZO), tech, some financials. We have a good mix of these on the reports. A growing economy and positive war news means growth. Growth in the economy means growth stocks.
THE MARKET
The pullback continued, but the indexes rallied off of their lows and sold on lighter volume. Pre-holiday, so lighter volume was almost a given; not a whole lot we can take from that, but it was not a distribution day. The big three, particularly the Dow and S&P may have some more selling to do first, but the SOX turned it around at key support and looks ready to rally if it gets the word.
VIX: 25.32; -0.81. Even with the selling volatility did not spike higher. Indeed, it fell on the session. This is not the action we were looking for at all on the selling, and one reason we will continue to watch for the Dow and S&P to pullback toward the 50 day MVA. 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 before this recent dip lower.
VXN: 52.68; +1.27. Nasdaq volatility rose on the selling. As is characteristic for this indicator, it sold down harder on the second day of selling even though it was lighter selling than the prior session. On more selling to test the 18 day MVA and up trendline (not far to go at all), we would like to see it jump. Still, it is much lower than it has been in a long while, and some more slight selling to those support levels would not give a bug jump. 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): 0.77; +0.17. Ah. Spiking higher on the selling, and closing near 0.80 even though the indexes rallied well off of their lows. This is what we were looking for and it is a good foil to the volatility indicator, but as we saw back in late summer, this ratio can be high while volatility is low, and the market does not jump. In this situation, however, we are glad to see put action jump quickly as it still shows option traders are looking for the market to pullback.
Nasdaq
Gapped lower, sold down close to the up trendline, and then rallied to close with a tight doji. Not bad action, but we look for a bit more downside intraday at least before it is ready to rally.
Stats: -5.46 points (-0.29%) to close at 1875.05.
Volume: 1.578 billion shares (-20.6%). Volume tanked on the pre-holiday session, more in line with the usual holiday action. Down volume eked out a lead at 789 million to 771 million upside shares. This close up/down action reflects the doji at the 10 day MVA on the candlestick pattern: buyers came in after the selling to send the index back to where it started. This is a sign it is getting ready to move up.
A/D and Hi/Lo: Decliners kept the lead, but at 1.03 to 1, they lost ground (decliners led 1.67 to 1 Tuesday). New highs fell to 42 (-24) as new lows dropped to 22 (-12). New lows falling on a down session is good.
The Chart: http://www.investmenthouse.com/cd/$compq.html
As noted the index sold down to 1853.67 on the low, closing right at the 10 day MVA. We did not think it could do it given the higher volume Tuesday, but it rallied off that low (and above the 18 day MVA at 1834.12) to show that doji on the close. That indicates the buyers caught up with the sellers and pushed the index back up. The up trendline is now at 1850, right at the low for today. The up trendline could very well hold the index at this point, but that does not mean it won't test through that level before rallying back to close there. It did that in late November. It may test down to the 18 day MVA but then rally to close above that up trendline.
Dow/NYSE
The Dow continued down for the second session, but on much lower NYSE volume. We expect a bit more pullback unless very positive war news is issued. Again, a very orderly pullback.
Stats: -66.70 points (-0.67%) to close at 9834.68.
NYSE Volume: 1.009 billion shares (-23%). Volume dipped on the selling, coming in well below average. The up/down ratio mirrored the price action: 668 million downside shares versus 344 million to the upside.
NYSE Volume: 1.310 billion shares (-1.3%). Pulling back slightly on the selling is what we want to see. 836 million downside shares versus 469 million to the upside.
A/D and Hi/Lo: Decliners stayed in control at 1.44 to 1 (decliners led 1.15 to 1 Tuesday). New highs fell to 55 (-37) as new lows dipped to 34 (-1). Again, it is good to see new lows actually falling on a down day in the market. It shows that stocks are pretty much getting sold out.
The Chart: http://www.investmenthouse.com/cd/$indu.html
Did not make an attempt at moving past Tuesday's close, falling early and unable to mount a serious bounce. It held above the 10 day MVA (9774.97) on the low (9796.41), and rallied up from that level. Even with the index holding at the 10 day MVA today, we still see more selling before it is ready to mount another rally. At a minimum we are looking at the 18 day MVA at 9656.36 to hold. There is serious support at the 50 day MVA (9558.16) as it is just above the rising up trendline out of the September bottom and the 9500 level, a point of serious support. We may only see an intraday test close to those levels, but we believe it will do this unless that wildcard good war news hits.
S&P 500: Sold down past the 10 day MVA (1132.93), landing on the low at 1129.78, just above the closing high in the early November lateral consolidation. Even with the nice recovery off of the low (over 7 points), we still think thoughts of a big cap rally are premature. More likely a test of the 18 day MVA (1121.29) at least, with the 50 day MVA (1109.76) and the coincident up trendline and support at 1104 backing it up with strong support. We would love to see that pullback to give it a good springboard higher.
Stats: Stats: -5.63 points (-0.49%) to close at 1137.03.
Volume: NYSE volume shrank well below average at 1.009 billion shares (-23%). What you want to see on selling, but with a holiday session, hard to put a finger on how accurate it was. For certain we know that there was no distribution.
The Chart: http://www.investmenthouse.com/cd/$spx.html
FRIDAY
Half day session. These are always tough to call. They can rise because of good feelings, or they can continue the trend. Right now if it were a full day we would look for those tests of the levels indicated above by the major averages, with the SOX and its components and other chips starting to lead the way higher. If good news comes on the war front, it will rally. All we can really do is look at what the market is telling us and get ready accordingly. We have a deep belief that Bin Laden's capture is going to be pretty soon, not the two weeks, three weeks, two months that is being bandied about. Despite the rise on the favorable war news, that is trumping war news, and the indexes will move sharply on the news.
Thus, if we see moves in those solid stocks in economically sensitive sectors on Friday, we will accumulate some positions. If we see the indexes hit the support levels and start to rebound, we will start closing positions on the puts because we hit the targets and that was our plan going in. Patience worked on the SOX, and we will be patient on these, but not complacent. Patience kept us from selling calls on BRCM early; we waited to see what was going to happen. We know that good war news will change the market, and we believe it is imminent.
One thing we won't do (unless something wild happens e.g. the report of Bin Laden's death) is shoot our investment wad Friday. Half day session, long weekend. A lot can go on. If good news comes out over the weekend, we can always get in at the next opportunity, and there will be opportunities Monday, Tuesday, a week later, two weeks later, etc. We just like what we see in the SOX after an orderly pullback, and we also like what we are hearing regarding the war.
Support and Resistance
Nasdaq: Closed at 1875.05.
Resistance: 1930 to 1940. The 200 day MVA is at 1975.08, just below the upper channel at 2015.
Support: The up trendline is at 1850. The 18 day MVA is at 1834.12.
S&P 500: Closed at 1137.03.
Resistance: 1150. The upper channel is at 1180. The 200 day MVA is at 1184.85.
Support: 1124 (prior consolidations). Then 1103 and the 50 day MVA at 1109.76, and the up trendline is coincident with the 50 day MVA.
Dow: Closed at 9834.68.
Resistance: 9992 held as resistance (former top and bottom). The upper channel is now just over 10,000 at 1050. After that, 10,200 (the 200 day MVA is at 10,188.35).
Support: 9870 failed to hold; it was weak at best. 9725 is possible, but not much is there either. The 18 day MVA is possible at 9656.36. After that we look to the 50 day MVA (9558.16) and the up trendline at 9500. That is strong as 9500 also acts as support independently.
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): -$18.7B actual versus -$26.0B actual and -$27.1B prior.
Leading Indicators, October (10:00): +0.3% actual versus 0.0% expected and -0.5% prior.
11-21-01
Initial Claims, 11/17 (8:30): 427K actual versus 444K expected and 442K prior (revised from 444K).
Mich. Sentiment-Rev., November (9:45): 83.9 actual versus 83.5 expected and 83.5 prior.
Treasury Budget, October (14:00): -$9.4B actual versus -8.7B expected and -11.3B prior.
End Part 1 of 2
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