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4/24/06 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts: JBLU
Buy alerts: SMSI
Trailing stops: None issued
Stop alerts: SLAB; SNDK; VIMC
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:
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SUMMARY:
- Stocks start the week soft but manage an afternoon rebound off support.
- OPEC says supply aplenty, just not enough refining . . . and bad timing
- Market still set to continue the move higher but once more is searching for a catalyst.
Afternoon rebound puts a better light on early weakness.
Friday stocks were knocked back after a good run earlier that week as oil prices hit $75/bbl and gasoline started hitting $3/gallon. Consumer discretionary stocks were sold along with growth areas such as technology. Monday some of that same weakness continued even though oil backed off from $75.
There was not much to drive stocks higher early given no economic news on the slate. Sure earnings continue and even hit their apex this week, but at this juncture they are not providing much pop. Last week the market rallied, but that was more on the FOMC minutes and hopes re the Fed than on earnings and the outlook ahead. Oil was lower as noted, but whether $75 or $73 means little; for now the trend in oil and gasoline is higher.
Thus stocks found the early going tough once more, with technology weak again. They were joined by energy and commodities, however, as they took time off as well after a strong run. Some continue to work at the finishing touches of their bases, others just taking a breather. With those leaders taking the day off once more, however, that pretty much assured a sluggish start.
Stocks sold but the indices did a good job of holding at near support, particularly on SP500 and SP600 where they tapped at the 10 day EMA and up trendlines and then rebounded. NASDAQ sold lower, but it managed to hold and rebound into the close as well. Volume remained low as they tested to support. Not bad action, particularly given the afternoon rebound. That keeps the indices making higher lows and still set up to move higher if they get the next catalyst. Bernanke speaks to Congress later in the week and oil has backed off some, but neither of those is likely to give the market the goose it needs, particularly if gasoline holds near $3/gallon.
That leaves the market holding near support and still trending higher. The last week also shows us the continued jerky movement in the market. The trend is definitely higher but the move remains one and one-half steps forward and one step back versus the usual 2 steps forward, one step back in a rally. That is a sign of the market volatility that still gives us upside but also provides frequent dips as the market balances every move against higher oil, gasoline, and interest rates.
THE ECONOMY
Plenty of supply but prices remain high.
When oil was in the fifties we talked about how supply was strong and if supply alone ruled oil would be back in the low forties or upper thirties. Back then there were still the extraneous issues driving prices higher. Iraq was still a hot zone with the supply going offline every few days, Venezuela was a problem, and Nigerian issues were just coming onto the scene. Add to those Iran, the Gulf storms, Nigeria becoming hot, and now more from Venezuela, and prices continue to hold a high risk premium.
Indeed, OPEC came out this weekend and said the world had plenty of supply on hand but that world tensions kept price from falling. That is debatable, however, because when you add up the lost production from around the world (Iraq, Nigeria, Venezuela, US Gulf) you have about 2M bbl/day taken off the market. That isn't chicken feed. It is thus a combination of tensions and supply issues. That combination is showing up all across the spectrum, the most notable being the pump price here in the US. Last week we started to see $3/gallon and the Lundberg Survey today said the national average last week was $2.91/gallon.
It isn't all tensions, however. It is also logistics. Right now there are as many refineries down as there were after the 2005 Gulf storms. The changeover to ethanol from MTBE was timed to be in place ahead of the summer driving season, but it was late in execution. That is driving prices higher due to down refineries and those that are up having to switch to ethanol. Thus after this bottleneck in production prices might abate if the refineries can catch up to demand before summer driving really kicks in.
One thing to note: right now oil and gasoline prices are hitting the levels last fall that led to demand decline. You hear every night on television the complaints about high prices and how consumers are cutting back. That is exactly what happened after Rita. Thus we can expect a demand decline that may impact price as well. The big issue for the market is whether the demand decline coincides with overall lower consumer spending as it did after the 2005 Gulf storms.
THE MARKET
MARKET SENTIMENT
VIX: 11.75; +0.16
VXN: 15.61; -0.31
VXO: 10.43; -0.34
Put/Call Ratio (CBOE): 0.84; -0.09
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: -9.48 points (-0.4%) to close at 2333.38
Volume: 2.063B (-13.53%). Volume fell back below average for the first time in a week, good action on the Monday fade.
Up Volume: 738M (+61M)
Down Volume: 1.269B (-412M)
A/D and Hi/Lo: Decliners led 1.79 to 1. Recovered from -2:1 on the early selling. Still not great but not massive downside.
Previous Session: Decliners led 1.15 to 1
New Highs: 161 (-61)
New Lows: 48 (+14)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ was under pressure again, continuing the Thursday and Friday selling. On the low it tapped at support at 2325 (from the late January and early March highs), finding support and then rebounding in the afternoon move to close near the 18 day EMA (2335). No ramping volume on the selling, good to see in response to Friday's high volume (though expiration related) sell off. On the close it managed to hold the January high; at least it is showing the right action. NASDAQ continues to hold its breakouts even though it stumbles along afterwards. This is where it should make a higher low and continue its 1.5 steps up, 1 step back action.
SOX (-0.70%) reached lower as well, undercutting the 50 day EMA (512.95) and then rebounding to hold that level. As with NASDAQ, good shakeout action and if it holds here, a higher low as well. SOX is trying to move up the right side of its 12 week base that started forming in late January. As with NASDAQ, this is where it needs to hold and begin the next move.
SP500/NYSE
Stats: -3.17 points (-0.24%) to close at 1308.11
NYSE Volume: 1.51B (-14.7%). Volume fell below average to start the week as SP500 tested lower and recovered. No distribution after the churn at the end of last week.
A/D and Hi/Lo: Decliners led 1.49 to 1
Previous Session: Advancers led 1.14 to 1
New Highs: 135 (-155)
New Lows: 100 (+12)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 dipped for a modest loss after tapping at 1318 on the high Thursday and Friday. It was unable to extend the breakout over the April high (1312, closing), but the action was constructive. It tested the 10 day EMA and October/March up trendline on the low (1304) and rebounded for a modest loss. This is good action setting up the next break higher if it can hold near 1300 on the lows.
SP600 (-0.60%) faded similar to SP500, also tapping the 10 day EMA and its trendline (the upper channel line) on the low (395). Nice easy test back on low volume. SP600 should hold near this level if it is shifting its channel higher as discussed last week.
DJ30
DJ30 continues to hang tough, holding onto its gains from last week, gains that came on some of the better volume DJ30 has shown since late January. Moving laterally above the March high (11,335), holding onto its gains. Still can test 11,250 (the 10 day EMA) and set up a further rally. Performing nicely.
Stats: -11.13 points (-0.1%) to close at 11336.32
Volume: 232M shares Monday versus the expiration shares Friday (325M shares).
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Not much to say about this action; definitely more of the same as stocks fade after a strong move last week, but remain in position to continue higher.
Consumer confidence and March existing home sales are out Tuesday along with more earnings and the continued oil/gasoline/interest rate watch. Earnings are losing some of their punch even though this is a big week for results. Once more the market is looking for a catalyst as it was two weeks back. It found it then but hasn't done much with it since. Indeed, NASDAQ basically gave most of it back with the recent moves though it rebounded Monday after testing on lower volume. The move is not pretty, but it is trending higher.
The verdict is still out on how the market is going to handle $75/bbl oil. The action Monday was sluggish and boring but overall not bad: testing lower early on light volume, rebounding after holding support on the low. This market is not into making strong, long runs. It scratches out gains and gives most of them up before scratching out some more. Once more it is set up to rebound, but again, still in need of a catalyst.
All of this intrigue as the market heads toward a typically slower period for stocks. Last year stocks rallied May to July, but of course they sold off the first quarter as well. This year the market has rallied, albeit in a jerky fashion, through the same period. That with the high gasoline and oil prices sets up a very interesting post-earnings season.
Even with those issues the market has set up well for another try at new post-2002 highs. This has thus far refused to give in, and the action Monday set up the next rebound attempt. Energy and the commodities are still showing nice pullbacks and bases, and even techs are set to move after this test back from the strong upside move last week. We are looking at this as an opportunity to move into some strong stocks as the rebound on solid trade from this pullback.
Support and Resistance
NASDAQ: Closed at 2333.38
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 18 day EMA at 2335 is still trying to hold
The January high at 2333
2328 from the May 2001 peak
The recent high at 2325
2316 is the October/March up trendline.
The 50 day EMA at 2312
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 1308.11
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 at 1304.
The January high at 1303
The 18 day EMA at 1301
1297.57 is the recent February high.
The 50 day EMA at 1293
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 11,336.32
Resistance:
11,350 from the May 2001 peak.
11,401 from the September 2000 peak and the recent intraday highs
11,425 from April 2000 peak
Support:
The recent March highs at 11,329 to 11,335
The 10 day EMA at 11,255
The 18 day EMA at 11,221
11,159 is the February high.
11,137 is the last peak from the February top.
11,129 is the October/January/February up trendline.
The 50 day EMA at 11,129
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): 106.4 expected, 107.2 prior
Existing home sales, March (10:00): 6.65M expected, 6.91M prior
April 26
Durable goods orders, March (8:30): 1.8% expected, 2.7% prior
New home sales, March (10:00): 1.10M 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): 4.9% expected, 1.7% Q4
Chain deflator, Q1 (8:30): 2.7% 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): 58.0 expected, 60.4 prior
End part 1 of 3
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