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world stock market, us stock market
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4/22/06 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts: GOOG
Buy alerts: AMT
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:
- Growth areas start to gag a bit Friday as oil closes over $75/bbl.
- Oil hits choke point as gasoline starts ticking $3/gallon.
- Cannibalistic action: strong world economy leads to a weaker world economy.
- Commodities, energy lead Friday gains as money pours in, chasing performance.
Stocks close out the week in decent shape, but oil started to show its power Friday.
Even with the GOOG earnings sparking early excitement the session looked to be a struggle given the prior moves that jumped the indices higher early in the week and the resistance they were working against after that move. Futures were up but fading into the open, and tech stocks, the leaders in the big move to start the rebound, were suffering from some earnings saturation and some less than stellar results reported late Thursday. The large cap NYSE stocks, however, found buyers the techs had earlier in the week, and they were up once more and moving to new post-2002 highs as the energy, commodities and industrial stocks recovered from a shaky Thursday.
The gains were not major, but they were steady once more as the NYSE indices moved to those new post 2002 highs. That came to an end in the early afternoon, however, as oil prices approached and then moved through $75/bbl. The indices dropped like stones. Energy and commodities continued higher, but the indices sold as growth stocks and consumer stocks tanked.
The $75 point is what we consider the choke point for the economy, and it was no coincidence that we started hearing reports of $3/gallon gasoline from California, New York and elsewhere. We know from last fall that $3/gallon gas starts to cave demand, and we pegged $75 per barrel as the $3 point for gasoline. The average for the week rose to $2.85/gallon, but the late week spike is going to push it quickly higher. While many still trumpet the boom, and indeed there is one, the notion that it will survive ever higher energy prices is utter folly. Hate to sound negative, but sometimes reality makes you appear negative compared to pie in the sky dreamers.
Technically the market finished out the week in decent shape. The strong Tuesday move on solid volume helped NASDAQ continue its breakout string since clearing its two year ascending triangle back in November. Of course it could not hold the move on Friday, and the higher volume selling, while likely still attributable to expiration, means NASDAQ has to prove itself all over again. SP500, DJ30 and SP600 closed out the week in decent shape, just off the highs for the week, but SP500 never really made the breakout move, coming from the depths below its 50 day EMA to follow NASDAQ higher in the Tuesday rally. Its failure and double dojis at the early April highs mean it still as to prove itself as well. Even if they closed out the week strong, with oil spiking along with gasoline, any move would be questionable.
Volume was up on NASDAQ, not the best action given NASDAQ rolled over and lost 0.83%; at one point it was down well over 1%. It managed to bounce off the 18 day EMA, a decent hold of key near term support and the January high, but it gave up its breakout over the early April closing high. The volume likely had plenty to do with expiration, but we are not going to totally discount the spike. NYSE volume faded just a hair, but was still well above average. Definitely no shrinking violets on the NYSE, and while those indices did not suffer losses akin to NASDAQ, they could not push the ball further. That says 'churn,' and when it occurs at the top of a run it often indicates a pullback to test is coming because the sellers have caught up with the buyers.
Thus the market is not in bad shape after Friday, but it did show us a quick glimpse in the afternoon as to how rising energy prices can impact the market. Now that earnings season has lifted its skirt and more or less shown its goods, the key question is how the market will respond to $75/bbl oil. Remember, the marker reacts before the economy shows issues. That is one reason retailers were selling late Friday. Thus far the market has weathered higher and higher prices. Now that oil and gasoline are hitting the 'ouch' levels we see just how much 'boom' there is in this 'boom.'
THE ECONOMY
$75/gallon oil and the economy.
At the Friday close (75.17, +1.48) oil hit an inflation adjusted 24 year high. Thus while it was an all-time price high, in inflation adjusted dollars it matched 1982, the peak just before economic boom started. Does that mean we are about to see another 20 year expansion off of this?
Doubt it. That history does show that the economy can survive such a spike, but at that point we were coming out of a recession and an oil boom that preceded it and indeed helped foster the recession. The Arab oil embargo in the early 1970's helped push the US into a long malaise. The oil industry boomed in the late 1970's, but it peaked and oil prices tanked in 1984, hitting $9/bbl in the aftermath of the economic crash and Saudi Arabia's bid to show all of the world, including its OPEC brethren, that it was the dominant producer. The low prices then helped the economy take off and do so with little inflation.
Right now we have high oil prices driven by a surge in world demand as other economies came on line with expansion along with the US. Saudi Arabia has no ability to impact price by producing more oil. Prices have been high for three years and the pace of the climb had increased the past year. Gasoline is now approaching $3/gallon, the point where we saw demand destruction last fall. Thus the high prices have much more likelihood of stalling growth than fostering it.
There is a fear premium built into price, and if it were to go away that would help. After all, there is no problem with supplies. Estimates are that if the Iran, Nigerian, and Venezuelan worries disappeared oil would quickly fall to the low fifties or upper forties. Wow. If I could run 100 meters in 9 seconds I would be an Olympic gold medal winner as well. In short, the premium is not going to disappear anytime soon.
What ultimately happens with each price run is that at some point prices hit a level where businesses cannot make sufficient profit and have to raise prices. Consumers, however, already hammered by high gasoline prices, cannot or will not pay it. The economic balance breaks down and a slowdown ensues.
Cannibalistic economic theory.
That is what the above scenario really is. There is an old adage that a rally led by energy is never really a good rally because energy runs when prices are higher. Eventually prices get too high and the economy stalls because prices are too high. Of course, the market fades long before the economy shows the wear and tear.
That adage has been forgotten in this move. As we have reported regularly, some of the financial programs are totally ignoring higher prices because we are in a boom now and thus high prices mean nothing. Of course you can have a tumor growing in you for a long time before it makes you sick and kills you. You certainly hate to bet against a strong market, and indeed, though the market has been jerky, it continues to make new highs.
Nonetheless, prices are rising based on world demand and risk of interruption due to unstable politics. Those gains fostered by rising demand eventually kill off the very demand they created. Something like natural population control in the wild. In short, rallies that live by energy eventually die by energy, though energy is not the first to fell the pinch.
That dubious honor typically goes to consumer oriented stocks such as the retailers that, after a good week, took a sharp turn down late Friday. Growth stocks also take the hit, e.g. the weakness in tech Friday even as the industrials and commodity based stocks rallied.
It remains to be seen if that was just a one-day event in response to oil hitting a new high, but what we do know is that the market will start to cough and sputter before the economy starts to fade. Thus if you just watch the economy you can get lulled into believing things will continue on as is until you see economic trouble. That is the problem with the Fed's approach to rate hikes: it waits to see the damage and by that time it is too late. The market has been very jerky this year even as it makes new highs. It made new highs in 2000 as well even as it peaked. Right now we see a mix of accumulation and distribution and choppy action. Nothing necessarily nefarious, however, because we are not getting those big swings from day to day and leadership racing all over the map.
And that is why the Fed is about to stop even with energy prices rising.
Thus even with all of the talk about potential inflation from rising energy prices, the Fed is just about ready to stop raising rates. Bernanke and others realize that the economic impact of sharply higher energy prices is much more destructive than the potential inflation they may cause. After all, if the economy rolls over because of high energy prices, there won't be much inflation to worry about. In short, the Fed would rather be in the position to worry about inflation and high energy prices than worrying about a falling economy.
THE MARKET
MARKET SENTIMENT
VIX: 11.59; -0.05
VXN: 15.92; +0.4
VXO: 10.77; +0.06
Put/Call Ratio (CBOE): 0.93; +0.15. Quick jump back up in put activity after falling near 0.60 earlier in the week. The Friday expiration, however, had a lot to do with the jump.
Bulls versus Bears:
Bulls: 48%. Sharp drop from 53.2% the prior week and reversing a steady climb the past month. Sentiment was approaching the 55% level that is bearish; that makes the pullback welcome. It rose from 42.3% on the low this cycle, a level below the prior lows in May and October 2005. The market moved higher after that but it did not show us a strong surge.
Bears: 26%. As with bulls, bears are moving in the right direction, reversing a month of declines. A good jump from 24.5% last week but still well off its high at 33% for this cycle, a level that topped the prior two highs that gave way to strong rallies. The 20% level and below is considered bearish. It started this move just above 20%, the threshold level. Bears surpassed the readings from the two prior market bottoms in May and October 2005 (30% and 29.2%, respectively).
NASDAQ
Stats: -19.69 points (-0.83%) to close at 2342.86
Volume: 2.385B (+7.54%). Volume hit a high for the week, quite a feat for a week that showed the strongest consistent volume in at least a month. Expiration likely had a lot to do with the surge, but with NASDAQ falling hard we are not going to totally discount the session as NASDAQ gave up its breakout to a new post-2002 high on the strong trade. Of course, it made the break earlier in the week on very strong trade. We view the entire week as positive even with the Friday volume selling.
Up Volume: 677M (-190M)
Down Volume: 1.681B (+407M)
A/D and Hi/Lo: Decliners led 1.15 to 1. Very modest negative breadth as the large cap techs (-1.15%) led the move lower. This tells us the move was not as negative as it appears on the surface as stocks such as DELL (downgraded to sell) and EBAY (still suffering from earnings) sold off.
Previous Session: Decliners led 1.25 to 1
New Highs: 222 (-37)
New Lows: 34 (-4)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ was under the gun from the open even though it gapped higher to start the session on the GOOG excitement. From the open it sold, tried to consolidate mid-session, but then dove lower in the afternoon as oil prices surged. It fell to the 18 day EMA (2335) but managed to find support there and rebounded modestly to hold near the 10 day EMA on the close. NASDAQ gave up its breakout over the April closing high (2361) but held the January high (2333) on the low. Don't like the high volume on the selling but it was also expiration and NASDAQ remains technically decent. NASDAQ 100 made a lower high on this move, however, and the big cap techs don't look well after an important earnings week. The inability to make a move on good overall earnings is never a good sign.
SOX (-2.06%) gave up the break over the early April high at 525 and fell to the 10 day EMA and 50 day SMA (515.81, 516.56). Some big names were under pressure (e.g. BRCM, MRVL, SNDK) but it held the 10 day on the low and bounced modestly. It needs to make a higher low near this level or at the 50 day EMA (512.88).
SP500/NYSE
Stats: -0.18 points (-0.01%) to close at 1311.28
NYSE Volume: 1.77B (-0.63%). Volume was lower but remained above average as the NYSE indices basically held steady on the session, unable to make any headway as volume rose. That shows some churn at the recent high and suggests a pullback ahead. Given SP500 came from below the 50 day EMA on this move, as indicated earlier this week, we are not surprised it is taking a breather here.
A/D and Hi/Lo: Advancers led 1.14 to 1
Previous Session: Decliners led 1.13 to 1
New Highs: 290 (+26)
New Lows: 88 (-18)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 again tapped 1317 on the high but again faded, unable to make the move to the new post-2002 high stick. It ran from below the 50 day EMA (1292) where it threatened a breakdown and was unable to push to a definitive new high. Thus the test back from the April closing high (1312), showing a tight doji on continued strong volume. As noted, that indicates a further pullback to test the strong move. A pullback to the up trendline at 1302 would be a good higher low.
SP600 (-0.35%) faded slightly, coming off its new all-time closing high (401.51) hit on Wednesday. Nice, orderly fade from the small cap index after a strong run during the week. SP600 held above the 50 day EMA (384.76) and the up trendline (384) during the week and then shot back above its upper channel line (394.80). Expecting a test back to the 10 day EMA (394.94) or the trendline this week and then we see if SP600 is indeed extending its channel to the upside. Small caps are growth stocks; if the economy is going to stall due to high energy prices, they will start to show it. Thus far nothing of the sort.
DJ30
The Dow was a leader last week as it rebounded off the 50 day EMA (11,120) and its up trendline (11,125) on the way to a new post-2002 high. It cleared the March high (11,335), and held onto the move to end the week. It slowed some Friday, showing a doji on the candlestick chart, but after a strong move for the week that is nothing worrisome. Expecting DJ30 to show a fade this week to test the near support at the 10 or 18 day EMA (11,236; 11,208). The Dow with its industrials outperformed all week as money continues to fly into these sectors.
Stats: +4.56 points (+0.04%) to close at 11347.45
Volume: 325M shares Friday versus 336M shares Thursday. DJ30 showed its best price/volume action in months as the Dow rallied off its up trendline.
The chart: http://www.investmenthouse.com/cd/^dji.html
MONDAY
If energy prices are getting too high to sustain economic growth, why do stock prices in general continue to rise? The obvious answer is energy prices have not hit the point in either overall price and/or length of time at that price to stall economic growth. Of course, the market will fade before that, and as noted above, it has not started that yet.
Another reason is the massive amount of liquidity surging around the world. Surging world economies have produced a lot of money available for spending and investment, and a lot of that money is seeking investments in the US and elsewhere. Hard metals, oil, bonds, equities; you name it and it is being purchased. Ironically, the rising oil prices themselves are contributing as those petrodollars look for homes. Of course that is basically recycling the same money: we pay for it and they look to invest it. Still, for now that is one of the sources of liquidity, fueled by strong economies able to pay for more expensive oil, driving stock prices higher.
In addition, here in the US there is a lot of performance chasing ongoing as funds dump money into energy, gold, steel, industrial products, etc., trying to capture some momentum for the bottom line. That can be a most dangerous game; at some point the bell rings and the investment stops as the early money uses the high volume crescendo to exit positions. Once they are gone and all of the newcomers are in, there is no one left to drive the train further.
It is always dangerous when everyone is playing the same game. Thus far it is not just limited to commodities; most everything is rising and indeed technology led this move, holding support and sparking the new upside breakout. That continues a string of breakouts for NASDAQ, and that is consistent, steady leadership from a growth sector.
That said, the trends are holding as the indices continue rising with good leadership and as seen last week, good upside volume. The energy stocks sold off from February through March but that was part of a new basing process after a strong run. Now they are set up and indeed breaking out of those bases. The metals and commodities show similar action: good bases have set up to break higher. Unlike 1999 and early 2000 when stocks just ran higher and higher with little rest, this is traditional basing action that suggests orderly accumulation and not just a mad rush into any stock in the sector.
With all of our talk of liquidity and performance chasing, we don't want to lose sight of what is constructive action as opposed to a mad dash higher. Many were conditioned after 2000 to view any run higher as going 'too far too fast' and requiring some massive correction to 'get valuations in line.' Many had not known a sell off before that one and once the realization sunk in that it had indeed happened, well, the converted are not easily dissuaded. Nothing worse than a reformed anything.
Thus while the very impressive purchasing levels continue and give us plenty of reason to carefully watch for signs of a breakdown, the good basing action in the leaders, the rotation in the market, and the continued solid performance by growth areas such as technology and small caps thus far indicate that the market is still healthy. With oil now at $75 and gasoline ready to hit $3/gallon nationwide, however, the need for clear thinking is self evident. The Friday close was a bit shaky, but it was also expiration. We will be watching to see how that shakes out early this week. That means we exercise caution but as stocks continue to set up good bases and the market continues to show positive price/volume action, we are going to participate in the move.
Support and Resistance
NASDAQ: Closed at 2342.86
Resistance:
The February closing high at 2361.
2477 is the January 1999 peak
2493 is the February 1999 peak
2523 from the December 2000 low
3015 is the December 2000 peak and the October 2000 low
Support:
The January high at 2333
2328 from the May 2001 peak
The recent high at 2325
The 18 day EMA at 2335 held Friday
2315 is the October/March up trendline.
The 50 day EMA at 2311
2288 from December 2000 low.
2278 is December 2005 intraday high.
2273 is December 2005 closing high.
A minor peak at 2249
2240 is closing low in recent range.
S&P 500: Closed at 1311.28
Resistance:
1311 is the March intraday resistance on this move.
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:
The October/March up trendline and the January high at 1303
The 18 day EMA at 1300
1297.57 is the recent February high.
The 50 day EMA at 1292
The late January peak at 1285
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 11,347.45
Resistance:
11,350 from the May 2001 peak.
11,401 from the September 2000 peak.
11,425 from April 2000 peak
Support:
The recent March highs at 11,329 to 11,335
The 18 day EMA at 11,208
11,159 is the February high.
11,137 is the last peak from the February top.
11,125 is the October/January/February up trendline.
The 50 day EMA at 11,111
11,044 is the January high.
10,985 is the March 2005 intraday high
10,965 from Q4 2000 and November/December 2005
10,931 is the November 2005 high
10,890 is the December 2005 closing high.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
April 25
Consumer Confidence, April (10:00): 106.0 expected, 107.2 prior
Existing home sales, March (10:00): 6.7M expected, 6.91M prior
April 26
Durable goods orders, March (8:30): 1.6% expected, 2.7% prior
New home sales, March (10:00): 1.106M expected, 1.08M prior
Crude oil inventories (10:30): -806K prior
Fed Beige Book (2:00)
April 27
Initial jobless claims (8:30): 305K expected, 303K prior
April 28
GDP advanced, Q1 (8:30): 5.0% expected, 1.7% Q4
Chain deflator, Q1 (8:30): 2.8% expected, 3.5% prior
Employment Cost Index (8:30): 0.9% expected, 0.8% prior
Michigan sentiment (final), April (9:45): 89.0 expected, 89.2 prior
Chicago PMI, April (10:00): 58.3 expected, 60.4 prior
End part 1 of 3
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world stock market
us stock market
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