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us stock market, trend trading stock
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11/28/01 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERT SERVICE
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- A further pullback to the up trendlines on lower Nasdaq volume and higher NYSE (well, kind of) volume.
- Indexes back down to the up trendlines. This is where it gets interesting.
- Patience is the key while the indexes reset themselves.
- Reaffirmations of earnings abound.
- Team Trades
Selling pressure increases, but volume backs off.
After Tuesday's churn on higher Nasdaq volume, the techs continued to fall, but volume was lighter. If you have to have selling, lighter volume is what you want. As we know, lighter volume means that even though the sellers were in control for the day, they were not as aggressive as they were in prior sessions. That means their numbers are not growing, and it is a sign that institutions are not rushing to dump stocks that they have been buying for two months. That lends more credence to the idea that this is profit taking after another surge higher.
NYSE volume was up as the Dow and S&P sank. How is that not bad news? Well, Enron (ENE) traded 342,482,304 million shares, or 24.3% of the total NYSE volume. Average ENE trade is 21 million shares. So, while institutions were dumping the heck out of ENE, the rest of the NYSE pulled back on lighter volume, or about 1.06 billion shares (1.305 billion Tuesday).
Back to the up trendlines after bouncing down from resistance.
After the test of resistance the indexes are now moving back toward the downside support, the up trendlines. This is the important point in the pullback. Everyone is so nervous that the move higher is only a bounce before at least a test of the lows (the bears say it is a bear market bounce), each pullback is accompanied by a lot of hype and a lot of anxiety. The fact that the indexes are coming down to the up trendline gets things even more intense.
What we have is a lower volume pullback to test the uptrend. In 'normal' times this would be nothing. Now it is a white-knuckler. But we don't really view it as that. The breakouts are holding better, earnings are being affirmed, the economy is improving, and a breakthrough today in the stimulus package. That is big mojo. We like what we see, particularly the price/volume action that is the nuts and bolts of the market's mentality. Today that volume backed off after some higher volume churn Tuesday, and that is very good.
So what happens now?
Now this does not mean it taps the trendline and it is off to the races. As we have seen during the move higher, the indexes can trade intraday down below the up trendline. The key is whether they recover on the close to hold the trendline. With the downward momentum at today's close we see more downward momentum on the open barring any unexpected news. That could cause fear as the indexes move below those up trendlines. Then we could very well see the reversal.
One good sign was the SOX holding above its 18 day MVA and the up trendline that is a bit below that. It continues to trade in a narrowing range that is very much like an ascending wedge: a constant top at 550 and rising lows up the trendline. That is a building of pressure from below, and that can drive breakouts.
The 200 day MVA above the Nasdaq and the SOX, and the down trendline above the SP-500 are strong points of resistance. Bears will try to sell at those points, and as we saw Tuesday, bulls use that to take profits as well. Remember, lower volume selling today means more profit taking as opposed to dumping. When the profit takers are done, then the buying can be there to clear the resistance. That also causes more bears to cover shorts as an important resistance level is cleared.
We have had some good runs, and it is time to be patient and careful to let the indexes set back up.
Because they are strong resistance levels, the indexes may dance with them for a few sessions before making the move. As we have noted earlier in the week, the lateral, tightening move below the 200 day MVA and above the up trendline builds pressure for either a breakout or a breakdown. Right now the market is not showing the signs of a breakdown as it is not selling on stronger volume. The more it can move laterally the next few sessions on mild volume, the more profit takers are weeded out, and the stronger hands hold the stocks and that drives prices higher. That is how you clear strong resistance. If it does that and fails at another run toward resistance, that is not good. If it tanks further from here on rising volume, that is not good. For now it looks pretty decent if it can keep building along the up trendlines. If not, those interesting times return. This is a time for PATIENCE to let the indexes do what they need to do to either get ready for that next run or pullback further.
Continued decent news despite pessimism that the market has come too far.
During the session and after the close we continued to have stocks affirm their earnings for the quarter. PALM, BRCD, ALTR, VTSS, MIKE, and DELL all were in on the game today. Again, INTC said that it had a shortage of Pentium 4 chips in Asia, a sign that maybe some inventories were getting light. Unfortunately that is just one chip in a sea of DRAMS, etc., but it is a sign that things could be moving for the better in the economy.
THE MARKET
Continued selling after tapping strong resistance Tuesday. The volume was lighter, and that gives more confidence the up trendlines will hold. If they do not then you start guessing as to where they hold. Right now we like what we see, but this is a time to be patient and cautious: a strong run and the first real test in a while in the form of the 200 day MVA and the down trendlines from March 2000. The market is still showing good action and we continue to look at our positions for a continued move higher after this pullback. When the time is right we are going to close out some of the covered call sales and then add to positions as the indexes turn back up.
VIX: 27.75; +2.54. Volatility jumped higher on the second day of selling. That is the usual case: a mild move on the first day, then a jump on the follow up. A sharp spike on what was really lighter volume selling sans ENE. Not bad, but still well below the prior levels during the run from the low. 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: 52.51; +2.94 points. Making a sharp move higher as soon as the Nasdaq started selling back on Tuesday. That is some of the better news from the sentiment indicators. It is back well above the summertime boring levels that indicated major complacency and rising fast. The market needs it. 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 after that 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): 0.74; +0.06.
Nasdaq
The leader took the hardest hit as usual. The up trendline has diverged with the 18 day MVA, rising above that level and now resting just below the Nasdaq close. Lighter volume on the selling, but not anemic volume. Now we see if the trendline holds.
Stats: -48.00 points (-2.5%) to close at 1887.97.
Volume: 1.905 billion shares (-10.7%). Lower, just below average on the selling. If you have to have selling, lighter volume is preferred. 1.573 billion downside shares to just 322 million upside. Sellers were clearly in the lead, just no major dumping of shares today.
A/D and Hi/Lo: Decliners clobbered advancers 1.83 to 1 (1.08 to 1 Tuesday). The first real trouncing in a while. New highs dropped again, down to 62 (-26) as new lows fell to 22 (-2). We really like it when new lows decline on selling. An indication the market is not collapsing.
The Chart: http://www.investmenthouse.com/cd/$compq.html
Opened lower and made a brief run to positive territory. Never made it back to the 200 day MVA (1960.54) before it rolled over and then made a steady downtrend out of it to the close. The 18 day MVA is now at 1863.62, but the up trendline is now just below today's close at 1885. That does not leave much of any maneuvering room for the index after just a couple of selling sessions. The difference: it did not make as strong a move up on the last rally, and it did not sell back as far (all the way to the trendline) on the prior pullback. Thus we could easily see the index trade below the trendline intraday tomorrow, particularly with the downside momentum at the close. The key will be if it can rally back on buying or at least drift toward the 18 day MVA on even lower volume. So far it has been acting well, but it will have yet another chance to show it again tomorrow and Friday.
Dow/NYSE
The Dow sold hard again, breaking below the 18 day MVA, but still above the up trendline and the 50 day MVA. ENE cast a cloud on the NYSE and on the volume. Even with the action we still like what we see for a hold at or above 9500.
Stats: -160.74 points (-1.6%) to close at 9711.86.
NYSE Volume: 1.390 billion shares (+6.5%). More rising volume on the selling, coming in above average, but as noted above, without ENE's massive selloff, you get 1.1 billion shares at best, down 200 million from Tuesday. That is a good sign if you have to have selling (heard that before?). 1.175 billion downside shares to 222 million upside. More ENE shares sold than upside shares.
A/D and Hi/Lo: Decliners routed advancers 1.93 to 1 (1.24 to 1 Tuesday). As with the Nasdaq, this was almost the worst beating in the rally. New highs fell again down to 55 (-24) as new his rose to 42 (+18). We don't want those new lows to get out of hand, ballooning on the way down.
The Chart: http://www.investmenthouse.com/cd/$indu.html
No effort made at a rally on the Dow today as ENE set the tone for the session. It broke below the 18 day MVA (9732.94) on the way to the up trendline at roughly 9670. The 50 day MVA is just below that level at 9605.37. The index is moving to meet these levels. At the worst we would like to see 9500 hold as that has been some pretty solid support. Retracement theories say it could fall 30% of the move from the low to the high, or about 525 points or so. That would put it down just below 9500. We would prefer a hold at the trendline on the close with a good reversal volume day. In any event the overall market still looks pretty solid, and if the Nasdaq can continue to lead, the Dow will ultimately if not grudgingly follow.
S&P 500: The S&P rolled down harder today on that stronger NYSE volume, breaking through the 18 day MVA (1129.95) and coming to rest right above the some prior price consolidations at 1125. More importantly, the up trendline resides at 1125 as of today's close. As with the other indexes, that does not give much maneuvering room to the downside. Again, that can mean trading below the up trendline intraday tomorrow as the downward momentum continues. The 50 day MVA is below the trendline at 1115.13, just above some pretty solid support at 1103. What we do now is watch and wait to see what level holds; are the buyers going to come in again or is there a bigger correction ahead? Patience and no panic. Thus far the market is not showing it will succumb to a bit of distribution, but it also has not hit the March 2000 downtrend (1165) to this point either.
Stats: -20.98 points (-1.8%) to close at 1128.52.
Volume: NYSE volume jumped on the back of the ENE implosion, coming in at 1.390 billion shares (+6.5%). Without ENE, volume was nearer 1.1 billion, well below the 1.3 billion Tuesday.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Durable goods, jobless claims, and new home sales hit the market tomorrow. Economic reports are now given more weight again with good news being good news, but that may just be because investors are looking for a reason to sell and then perhaps buy after the selling.
The momentum was down with the indexes closing at the lows. Futures were down but not crushingly low; a lower open that tests the 50 day MVA's would not be bad followed by a rally back up to the trendlines. That is about the best case scenario we see right now given the indexes do not have much room to work with above the trendlines. They have held just fine, but they are not long term trendlines; they are 2.5 months old, rising from the September bottom.
There is a lot of overhead in the form of the 200 day MVA and the down trendlines from the March 2000 high. Those trendlines are the last vestiges so to speak of the bear market. As such they are hard to clear. The indexes have sold pretty sharply after tapping close to them, and that attests to their strength. They need more lateral movement to clear them, and that may mean the trendlines pass the indexes by as they move laterally and slightly lower as they gather for the move higher. That is how they have successfully moved up this entire rally. They need a couple more days from the looks of it to really be ready for another shot at resistance.
Tomorrow will be a day of patience. It is very easy to get carried away in intraday moves, and while they are good to follow in taking positions, they should not be placed above the bigger picture of stock movements over days, weeks and months. Sure you can hit a good entry point intraday, but we want to do that when the time is right to be taking trend positions for the longer term whether that is a week, a month, 6 months, a year, etc. Thus, while we were tempted late to take some more positions because the indexes were holding above support levels, we held off at the end of the day because we were going to let this move play out to the downside and then move in when the indexes reversed off support and gave us good entry points. We don't want to get into the game of feeling we have to get into the market each day. If a play presents itself, we take it. We don't try to force the play, however, trying to catch a move at the exact bottom. As we have seen on the move up, there are many times we can take good positions, and letting them set up is the key.
So tomorrow we will watch to see if the markets continue lower and where they hold. We will watch the volume on the session. Just as we did today, we then issue alerts as to whether we hold onto the index puts another session or prepare to move in for a few purchases. Again, it is a time to let the indexes and stocks show us what they are going to do, set up, and then make the move.
Support and Resistance
Nasdaq: Closed at 1887.97.
Resistance: 1930 to 1940. The 200 day MVA is at 1960.54. The March 2000 down trendline is at 2115.
Support: 1875 is the bottom of the recent trading range. We will see how it fares tomorrow. The up trendline is at 1885. The 18 day MVA is at 1863.62. Below that is 1800 and the 50 day MVA at 1800.20.
S&P 500: Closed at 1128.52.
Resistance: 1150. The March 2000 down trendline is at 1162. The upper channel is right at the 200 day MVA at 1180.80 (the 'hump' in the March and April double bottom as well).
Support: The up trendline is at 1125 (also a point of prior price consolidations). Below that is the 50 day MVA at 1115.13. Then 1103, the old closing low in the double bottom from March and April.
Dow: Closed at 9711.86.
Resistance: 9992 (former top and bottom). The upper channel is now coincident with the 200 day MVA at 10,167.32. Other resistance at 10,200.
Support: 9790 did not hold at the bottom of the former trading range. It fell below the 18 day MVA (9732.94). Up trendline at 9670. 50 day MVA below that at 9605.37. 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 stocks were selling for the most part and as we discussed last night we were going to have to look at whether we wanted to keep some positions if they sold down as well as look at some covered call positions. BRCM and other leaders were primed for some selling, and we did sell some December 50 calls on some of our shares early on. We are trying to catch a move down to 45, buy them back and be done. That is money in the bank as BRCM pulls back after its good moves.
AMCC was a harder nut. It was downgraded and was selling early but made a rally attempt with the market before it rolled down. When it hit 7% below our buy point with about 45 minutes to go, volume was high. We sent out an alert notice that it had hit that level to let everyone know. It was still above the 50 day MVA, but it had fallen below that 14 level that looked solid. We missed on selling covereds on it earlier in the session. We may have made a mistake, but we decided to sell out with a loss on the most recent positions; we made some gain on the positions taken earlier, so it was not that bitter of a pill. The selling was just too intense for us to hang on.
MNC was in a tight, tight pattern, and we were ready to jump on it when it made its move. Well, today it did that about 2.5 hours into the session. Volume was good for the time and the move was impressive. We moved in with a stock position at the ask, and the stock then ran up to 20, about 20 cents above our buy point. Then it pulled back as they often do after an impressive run, but just to the buy point (just what we want), and then it ran back up to 20. It could not, however, break beyond that point. It formed a quick double top and sold all the way back down to close with a slight gain, but well below our buy point. Good volume on the session, but it could not hold it. Still like the pattern.
End Part 1 of 3
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