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financial investment, day trading
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4/26/06 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: RYI; BOOM
Trailing stops: USG; CTRP
Stop alerts: USG; DO
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:
- Market tries to bounce but lacks leadership, ends basically flat.
- Strong economic data pushes rates higher ahead of Bernanke congressional address.
- Durable goods orders surge both with and without aircraft orders
- New home sales get back on track, surge 13.8%
- Fed Beige Book sees 'steady' growth, no pricing power.
- What direction after market prices in Fed pause?
- Bernanke may provide the next catalyst based on what he doesn't say.
A market without leadership goes nowhere fast.
After four sessions lower (on NASDAQ, three on SP500) that saw the major indices test and hold near support, the market was ready to try a bounce. Futures were pretty frisky early on, indicating a pretty brisk open. Then the March durable goods report blew through expectations (6.1% versus 1.8% expected) and futures got the jitters. It still managed a higher open with all of the market posting modest gains. Then new home sales exploded past expectations as well (+13.8%), and with the market still on data watch, that knocked the legs out from the rally attempt. Stocks waffled on their upside move, energy stocks faded, and the indices moved laterally and lower the rest of the session.
Sure the large cap indices posted gains, but outside DJ30's move (all 30 of them, driven by GM actually showing some life) the indices basically went nowhere. Volume was up on NYSE, but lower on NASDAQ. Breadth was flat at best. The indices closed near session lows. To hear the financial stations tell the story it was a banner day. No, it was a slow struggle that gave back ground all session, leaving the indices basically where they started. Now that in itself is not necessarily bad; they were in decent position to bounce before Wednesday, and they remain in position to do that after Wednesday.
The lack of leadership is what got it. Energy was strong early but it reversed intraday. When energy stocks abdicated leadership no one else stepped up to take the baton. NASDAQ and the small caps are the likely candidates, but they were not ready. DJ30? Thirty stocks does not make leadership. Thus the weak drift into the close after a hard thump to start the last hour.
Again, that leaves the indices in basically the same position, holding near support as they test last week's move. Been here before. Let's see, that leaves them at near support, ready to rebound, but looking for a catalyst. The only new thing on the horizon is Bernanke's congressional address starting Thursday at 10ET. Even though Bernanke champions openness, we are not likely to hear anything that is going to give the market any further insight on rates. The economic data remains strong, so the Fed is on for 1 and likely 2 more hikes. Either way, that is not a bad result. The market is just not there yet, but it continues to rise in anticipation of that moment, and as history shows, that is what the market typically does when a rate hiking campaign is winding down.
THE ECONOMY
Tuesday it was consumer sentiment and existing home sales that surprised the market. Wednesday durable goods orders and new home sales shot higher. Q1 GDP is going to be strong, but Q2 is no Q1.
March durables post their largest ever increase.
6.1% easily topped the 1.8% expected and was the largest increase since the data was first kept starting 1992. Transportation orders rose 71%. That has been the story of the tape the past three months: as transportation goes (most notably airplanes), so goes the durables report. Take out airplanes and you still get a salty 2.8% increase, almost tripling the expected 1% rise. Business investment rose 3%, doubling expectations. Even February was revised higher to 3.4% from 2.7%.
New home sales jump 13.8%.
March sales roared back from February, posting the largest gain in 13 years. Impressive numbers but as mortgage rates are rising, builders are dropping prices. Some are offering incentives; a report from the west coast said a builder was offering new BMW's with each house. Prices fell 7.1% from February. The median price fell 6.5%. Importantly, year/year prices also declined 3.6% on average and 2.2% at the median. That kind of drop and the news coming from the field tell you that houses are going on sale, literally, as builders take aggressive action to trim their inventory. Unlike a person sitting in a home for sale, a builder cannot wait too long for buyers. Thus when sales slow as they did in February, March brings out the price cuts.
The pressure on the builders is also evident in the new homes for sale. That figure rose to 553K in March, up 25% year/year. Twenty percent of the builders are reporting a jump in contract cancellations. The builders definitely have the incentive to move the houses before the market gets too soft. Overall, however, the market does remain in good shape. It could not stay hot forever, and this slowing is typical. The builders hope things hold together long enough to lighten the inventory some more. Without a doubt, however, the market continues its slowdown despite the strong showing in March.
Fed Beige Book tells more of the same tale.
The BB had little market impact Wednesday; stocks were already languishing on the heels of strong economic data and a reversal in energy stocks. The recent March minutes and Bernanke's congressional address will get more attention.
Nonetheless, here are the results. The Fed sees higher wages, and higher materials prices in most all regions. Those Phillips Curve 'resource utilization' members get all puckered up over those stats. Despite that, producers were still finding it difficult to raise prices. Growth was described as 'modest,' 'moderate,' and 'steady.' That does not sound like the 2000 Fed with its 'runaway consumer' and corporate 'speculation.' If nothing else, perhaps the modern Fed has learned to talk a better game and not appear to be such a hypochondriac.
THE MARKET
MARKET SENTIMENT
VIX: 11.76; +0.01
VXN: 15.55; -0.04
VXO: 10.54; +0.02
Put/Call Ratio (CBOE): 1.07; +0.12. Not an expiration Friday and modest gains in the indices yet put activity rose. Lots of action in energy, accounting for a lot of options activity.
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: +3.33 points (+0.14%) to close at 2333.63
Volume: 2.161B (-8.8%). Volume was lower but still above average as NASDAQ tread water at near support. Not bad action to see the index hold support and volume move higher as it did the past two sessions.
Up Volume: 1.161B (-187M). Once more very even volume as NASDAQ held steady.
Down Volume: 968M (+56M)
A/D and Hi/Lo: Advancers led 1.04 to 1. Flat breadth as NASDAQ 100 was a bit softer than NASDAQ overall. Basically a neutral read as with the point gain. Again, that is nothing bad given where the index is.
Previous Session: Decliners led 1.06 to 1
New Highs: 199 (+11)
New Lows: 44 (-13)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ showed a doji on the candlestick chart, holding just below the 18 day EMA (2334) and right at the January high at 2333. A bit of upside, a bit of downside, then a close just about smack dab in the middle, continuing the three day lateral move at this support. Still trying to make the higher low, still holding onto those breakouts that started late last year from its 2 year accumulation pattern. It is also still trying to find a reason to move higher with high oil and gasoline. Earnings gave it a push and then pushed it right back down. It is still set up but needs a reason to go on.
SOX (-0.53%) was not the reason NASDAQ was looking for Wednesday. SOX again undercut the 50 day EMA (513.10) intraday, but once more rebounded to hold that level. Putting in a game attempt at a higher low here in order to continue its base, something of a skewed double bottom. That is being kind; there just aren't that many patterns to describe the base it is trying to build. It looks positive from here, but of course has to hold the 50 day EMA and that means putting in a decent move off of this level and giving NASDAQ some help.
SP500/NYSE
Stats: +3.67 points (+0.28%) to close at 1305.41
NYSE Volume: 1.768B (+5.26%). Rising volume as SP500 tried to rally once more, in the end managing just a modest gain. Modest accumulation session though it did close well off the intraday high. Would love to see this kind of trade with another upside move with more authority from both SP500 and SP600.
A/D and Hi/Lo: Advancers led 1.23 to 1. With the energy sector weak breadth was weak as the mid cap index was negative (lots of energy stocks call SP400 home).
Previous Session: Decliners led 1.64 to 1
New Highs: 198 (+45)
New Lows: 150 (+29)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 rallied again to 1311, the March highs, and once again fell back. It held the 18 day EMA (1301.73) and close right at the October/March trendline (1306). Volume was up, suggesting some accumulation but also some selling back from that same resistance. Needs to give us a definitive move off of this higher low at near support. It is set up to make the move.
SP600 (0.0%) was a flat-liner Wednesday, testing the 18 day EMA (393.41) on the low once more and rebounding. As with Tuesday, this is good shakeout and consolidation action as SP600 tried to make a higher low basically at the early April highs. No complaints; it is biding its time, waiting for the word to make the next move. Hope it comes soon; this action is a major bore.
DJ30
Stellar. Stupendous. Awe inspiring. Best move I've seen in years. Those are just some of the reviews of the Dow's Wednesday move. The financial stations fixate on the Dow, and thus the glowing commentary about Wednesday's lackluster market move. The Dow's mix of stocks simply doesn't not tell much of the market's story. It was a nice move, coming off the 10 day EMA (11,277) and the March high (11,335) to post a new post-2002 high. For those interested, that is just 341 or so points from its all-time high (don't quote me on that; I didn't bother to look up the exact figure). Lower volume. Move influenced a lot by GM, one of the crappiest stocks in the market. But even GM is showing life right now, trying to break higher off a 4 month trading range.
Stats: +71.24 points (+0.63%) to close at 11354.49
Volume: 178M shares Wednesday versus 289M shares Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
Initial jobless claims and Bernanke addressing Congress. Pull up a chair, open a cool one, go to sleep. It will be a curiosity to see how Bernanke handles the questions, but even this self-proclaimed plain-talking Fed chairman won't be able to answer the most burning question, i.e. when is the Fed going to back off. Of course he has pretty much telegraphed it: 5% or 5.25%, but only the data knows. We seriously doubt the Fed will risk going past 5.25% on this round. It at least takes the summer off at that level, lets any Gulf storms and gasoline storms blow through, and then revisits the issue after the Pigskin Classic.
The market will be watching, but it won't get the clear message it wants. On the other hand, it has pulled back from last week's rally, it has held support, leaders are holding support (though energy is in a dive), and price/volume action is not that bad. Get the drift? It has set up to move higher, needs a catalyst, and if Bernanke satisfies the golden rule of Fed chairmen at the end of a rate hiking campaign (that every chairman to this point has violated), i.e. do no harm, then the market will have the catalyst it seeks to continue the move higher. In other words if Bernanke does nothing to change the market's perception of one, maybe two, but no more for now, then investors will likely have what they need to buy some more stocks.
Not that it will be a grand swoosh higher. This market simply does not do that in 2006. The market has rallied in anticipation of the Fed ceasing its rate hikes. The market does not rally after the fact; it always anticipates. Even with this anticipation rally, however, the move has been as nervous as a republican this November. Every move is not just sold back, but is almost completely sold back. So many stocks are testing a move it is hard to say much different about the plays. They are either breaking out or testing; there is not much in between.
Once the Fed speculation becomes reality, the market typically does not rush higher. The move was in anticipation. The act is not that great. Where have I heard that before? The point: this rally in anticipation has been higher, but it has been nervous and choppy. Once the reason to rally is gone, will the factors making it so dang jerky take over, i.e. high oil and gasoline? In other words, those have kept this rally in check, not letting it really reach its potential. After the anticipation then we can be pretty sure what is left will be high energy prices. That may cause some real grief down the road.
In any event, we saw some life today so we took some new positions in anticipation of a further move. The leaders, after all, lead the overall market. They often start moving first; guess they should do that by definition. Anyway, we are going to be ready for some more moves Thursday. After this pullback to support they are primed for a bounce, and Bernanke may just provide the goose needed when he doesn't say something stupid like bubble, or irrational exuberance, or surprise is good for the market, or Phillips Curve, or what do you think of rates at 6.5%, or if I stay here 18 years you think my nose will be as big as Greenspan's.
Have a great evening.
Support and Resistance
NASDAQ: Closed at 2333.63
Resistance:
The January high at 2333
The 18 day EMA at 2335 is not entirely broken
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:
2328 from the May 2001 peak
The recent high at 2325
2321 is the October/March up trendline.
The 50 day EMA at 2313.60
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 1305.41
Resistance:
The October/March up trendline at 1306 is keeping just ahead of the index
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 January high at 1303
The 18 day EMA at 1301.72
1297.57 is the recent February high.
The 50 day EMA at 1293.72
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 11,354.49
Resistance:
11,350 from the May 2001 peak is giving way.
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 11,277
The 18 day EMA at 11,241
11,159 is the February high.
11,147 is the October/January/February up trendline.
11,137 is the last peak from the February top.
The 50 day EMA at 11,144
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): 109.6 actual versus 106.4 expected, 107.5 prior
Existing home sales, March (10:00): +0.3% versus -3.0% expected; 6.92M actual versus 6.65M expected, 6.91M prior
April 26
Durable goods orders, March (8:30): 6.1% actual versus 1.8% expected, 3.4% prior (revised from 2.7%)
New home sales, March (10:00): 1.213M actual versus 1.10M expected, 1.066M prior (revised from 1.08M).
Crude oil inventories (10:30): -0.2M actual versus -806K prior
Fed Beige Book (2:00): Growth modest, moderate and steady.
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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