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Begin Part 2 of 2
Nasdaq
Hit the 200 day MVA and fell back with some higher volume churning. Still, it was stingy with its gains as noted above; not many breakouts form the past few sessions cratered back. Sideways would be the best for now.
Stats: -5.26 points (-0.3%) to close at 1935.97.
Volume: 2.136 billion shares (+23%). Back above average and the first strong volume in almost two weeks. Too bad it was on a churn just below important resistance. Buyers and sellers were evenly matched at 1.074 billion downside shares to 1.011 billion upside shares. Churning is not great, but it was not a turn down from resistance and a tanking. Today was a negative but not a disaster.
A/D and Hi/Lo: Decliners took over with a mild 1.08 to 1 lead (advancers led 1.35 to 1 Monday). New highs fell to 88 (-13) while new lows rose to 24 (+4).
The Chart: http://www.investmenthouse.com/cd/$compq.html
The chart was a tight doji with the high right on the 200 day MVA (1965.09). The bottom tapped the 10 day MVA (1902.89). There is something really, really interesting and definitive going on here. The Nasdaq, the leading index off the September bottom, is being squeezed between resistance at the 200 day MVA from the top and support at the up trendline at roughly 1870 (just above the 18 day MVA at 1860.75). That is one reason we have been calling for some more sideways action here as it tests the 200 day MVA. If it can move laterally further and consolidate a bit more, given the upside bias in the market, we anticipate an upside breakout over that resistance. We have to keep an eye on volume with today's doji and churn on above average volume, but as long as it hold support we will watch for that upside move.
Dow/NYSE
The Dow could not handle resistance at the prior double bottom 'hump' at 9992, hitting that level again on the session high and then tanking on higher, though still below average volume. Could test up trendline or continue its lateral consolidation.
Stats: -110.15 points (-1.1%) to close at 9872.60.
NYSE Volume: 1.304 billion shares (+14.5%). Rising volume on the selling, but still below average (1.45 billion). Down volume was slightly ahead at 757 million to 535 million upside shares. Pretty much matches the action, but not sellers were not way out in front.
A/D and Hi/Lo: Decliners took over 1.24 to 1 (advancers led 1.10 to 1 Monday). New highs fell to 79 (-28) while new lows fell to 24 (-9). It is VERY GOOD action to see new lows fall even as the market falls. That tends to indicate that stocks are indeed sold out.
The Chart: http://www.investmenthouse.com/cd/$indu.html
Resistance at 9992 held again today, this time sending the index lower toward the bottom of its recent trading range from 9790 to 9992. There is some support at the bottom of the range, but it is tenuous as it formed just over the past two weeks. Note that on the low (9831.15) it once again held at the 10 day MVA (9846.12) and bounced up from there to the close. As indicated last night, if it can hold the line there, it has made a small wedge, a bullish pattern that could bounce it over the resistance at 9992. The selling on higher volume is a concern that the 10 day MVA may not hold, but it was not heavy volume today. The 18 day MVA is at 9750, and the important up trendline is just above the 50 day MVA (9601.02) at 9625. In the bigger picture, that is the key level to hold on any more significant selling. Still, we like the lateral action, and if it can hold, it bodes well for the index. We are not really interested at taking any new short positions at this point, but would wait for a real collapse below the 50 day MVA. Right now that does not look as if it will happen.
S&P 500: The big caps tapped the March 2000 down trendline on the high (1163.38), but that sent the index right back down. It bounced between the 10 day MVA on the low (1140.81), managing to close back up right at support at 1150. The downtrend is serious resistance. As with the Nasdaq, the S&P is being squeezed between the resistance and rising support in the form of the up trendline at 1120, just above the 50 day MVA at 1114.59 and price consolidations at 1125. Selling volume was not tremendous, and if it can hold with a lateral or slightly lower move, it too will make a more definitive move. If stimulus can get passed and the positive economic outlook continues, we look for the breakout to the upside.
Stats: -7.92 points (-0.7%) to close at 1149.50.
Volume: NYSE volume rose again, but today on selling (1.304 billion shares, +14.5%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Not much economic news tomorrow until the afternoon when the Fed Beige Book survey of the overall economy comes out. With the foreshadowing today from Fed members, expect to see a report that says the economy is still contracting. The Fed is in the downside management game right now, trying to keep the idea that there are still problems out there to avoid a further rise in interest rates. Thus we can expect more of the same and that may impact the market in the afternoon as the consumer confidence did today.
Maybe not as sharp an impact, but it seems investors are getting ahead of themselves in anticipating an economic recovery. Now that the worm has turned a bit, they have an insatiable appetite for positive news to reinforce their new commitment to a recovering economy. They are now looking at every report to rationalize their stepping back in. That is why the surprisingly low consumer confidence number affected the market as much as it did.
What we are going to look for is more of a lateral to downward move toward those near term support levels. We would really like to see the indexes continue in their recent tight ranges, moving laterally toward a showdown between resistance and rising support. Regardless of whether they move in the lateral consolidation or move back down to any of the many near term support levels, we want to see them hold on below average volume in preparation for a move up to take on that resistance again.
We are seeing many of the good moves hold on quite well even in the face of today's selling. We are going to look at selling some calls on our existing positions for some fast profits while there is some selling, trying to gain $1 or more net on the positions. As we teach in the seminars, we have a goal of netting $1 on our stock positions with covered call sales and buybacks each month. Sometimes we get more, sometimes just a dollar, but it is a great way to take advantage of the downturns that always occur.
If we see the indexes hold support and start back up, we will take more positions as presented. The market still appears to be building in a stair step fashion, and that bodes well for longer term ownership.
Support and Resistance
Nasdaq: Closed at 1935.97.
Resistance: 1930 to 1940, a level it is trying to clear now. The 200 day MVA is at 1964.14, a level that the index could not break today. The upper channel is way up at 2055 now. The March 2000 down trendline is at 2115.
Support: 1875 is the bottom of the recent trading range. The up trendline is at 1870. The 18 day MVA is at 1860.75. Below that is 1800 and the 50 day MVA at 1796.61.
S&P 500: Closed at 1149.50.
Resistance: 1150 is not broken yet, but it is trying to hold as support as well with the index rallying back up to close at that point today. The March 2000 down trendline is at 1162. The upper channel is right at the 200 day MVA at 1181.86 (the 'hump' in the March and April double bottom as well).
Support: The 18 day MVA is at 1130.11, just above 1124 (a point of prior consolidations). The up trendline is 1123 and the 50 day MVA is at 1114.59. Then 1103, the old closing low in the double bottom from March and April. Again, there is a lot of support unless something bad happens.
Dow: Closed at 9872.60.
Resistance: 9992 (former top and bottom). The upper channel is now at 10,120. The 200 day MVA is at 10,173.49 and there is resistance at 10,200.
Support: Lows at 9790 in the current consolidation are possible support. Then the 18 day MVA is possible at 9735.42. The up trendline is at 9625 and the 50 day is at 9601.02. 9500 also acts as support independently.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
11-27-01
Consumer Confidence, November (10:00): 82.2 acutal versus 86.5 expected and 85.3 prior (revised from 85.5).
Existing Home Sales, October (10:00): +5.5% or 5.17M annual units versus 5.00M expected and 4.90 prior (revised from 4.89M).
11-28-01
Fed's Beige Book (14:00)
11-29-01
Durable Orders, October (8:30): 1.8% versus -8.5% prior.
Initial Claims, 11/24 (8:30): 430K versus 427K prior.
Help-Wanted Index, October (10:00): 52 versus 52 prior.
New Home Sales, October (10:00): 850K versus 864K prior.
11-30-01
Chain Deflator-Prel., Q3 (8:30): 2.1% versus 2.1% prior.
GDP-Prel., Q3 (8:30): -0.8% versus -0.4% prior.
Chicago PMI, November (10:00): 45.5 versus 46.2 prior.
TEAM TRADES
Today we were anticipating having to issue a few stop alert advisories (we send out alerts when stocks hit 7% below the buy point, moving them up as the stock moves higher so investors can determine if they need to sell or can continue to hold), but as we watched the action unfold today, stocks were holding onto their gains. I was driving our traders crazy with questions about stop alerts. But, it is a bit indicative of the market of late; stocks being stingy and not selling back. To the contrary, we saw many stocks hit solid buy points on the rally up, and most held onto those gains.
One that I really wanted today was QLGC. Of course, I had to run to a meeting and was not in when it hit the buy point and our folks sent out the alert. I checked my Palm, but when in a meeting it is not always convenient to stop and check any messages. Well, when I was able to check, the market was in the last half hour of trading and QLGC had made a strong move and was above the pivot point riding great volume though it was down off of its high. I was tempted to put in an order right then and started looking at the option choices we had for January. On a whim I looked at April $40 calls (The stock was at 49) and they were asking just under $15 and the spread was a reasonable 30 to 40 cents. I could buy three more months for about $1 more per month per option. Not a bad deal. Discussing the market with the traders, it was brought to my attention that they were going to issue an alert that the Nasdaq and SOX had touched the 200 day MVA and had made a small double top and had started to tank pretty fast. I decided to see if QLGC and a handful of other stocks that had moved well could make the move back up along with the Nasdaq. I had a feeling, however, the Nasdaq was not going to make it over the 200 day MVA, and it was a day of churning.
QLGC started back up. The options moved to $15 on the ask. Volume was good. It was a great move out of a great pattern. I was ready to plow into the full position, but that close on what was going to be a doji on higher volume below the 200 day MVA was nagging. Time to an option buyer is the key. If the Nasdaq could not break above the 200 day MVA in a session or two, the options could lose a bit of value based on time and some falling volatility after such a great move (not much, but some). That is why I really started to think about April calls and stock (no time limit there). I also started thinking about scaling back the buy; why plow into the full position when there was some doubt about the doji below resistance. So I shortened up on the bat so to speak. I put in a limit order for 5 contracts, roughly a third to a quarter of the total position I was envisioning on this position. I could have picked them up for 14.90, but the stock was moving up a bit and put in a limit at the ask. The fill was made I was told by the broker, but have not received a confirmation as usual. Hmmm. Anyway, the point was I liked what I saw in the stock, but had some nagging reservations about the market action. So, I looked for more time and I took a smaller position. If it performs again, moving up on this breakout, I will add to my position; I like adding to winners that are working for me.
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
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rfitzgerald@esignal.com
Good Investing!
Jon L. Johnson and the Technical Traders Team
All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Online Investment Services, LP or its paid consultants and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. We are not licensed or registered in the securities industry. The information presented herein and on our related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolio of Partners of Online Investment Services, LP or its paid consultants may, in some instances, include securities mentioned herein and on our web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors.
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