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5/04/06 Technical Traders Report Update
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Technical Traders Report Subscribers:
Full report issues Saturday.
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: DIA; ABX; SOX; AEIS; OIS
Trailing stops: None issued
Stop alerts: EGY
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http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- NASDAQ follows SOX' lead, but volume weakest in a week.
- Same store sales jump on late Easter, but before the big gasoline spike.
- Wal-Mart, COST and other discounters enjoy sales gains on gasoline.
- Oil peels back from $75/bbl again as gasoline demand flattens at $3/gallon.
- Breakouts ahead of April jobs report indicate there is still life in the economy.
Even without energy stocks the market posts gains as NASDAQ retakes the 50 day EMA.
Stocks were buoyed early, but as seen this week, the start of the session means little. Solid same store sales helped stocks get off on the upside with teen retailers surging back from the March disappointment and discounters such as WMT swamping expectations even with rising gasoline prices that purportedly target the discounters' primary customers. In addition, oil prices continued to fall on the heels of last week's unexpected rise in gasoline inventories, pushing oil below $70/bbl (closed at 69.94, -2.34) for the first time in a month.
That was enough to offset fears of the Fed for the day. While NASDAQ has lagged the past week, SOX showed signs of life and Thursday built on its move off the 50 day EMA. That helped drag NASDAQ back above its 50 day EMA, and it held that gain into the close, finishing just off its session high. That was a much needed move, and it was good for the market to see the triumvirate of NASDAQ, SOX and SP600 leading the upside move even as energy stocks sold on the oil plunge. The Dow transports rallied as well, punching to a new all-time high as its counterpart DJ30 posted a new post-2002 high.
The key move was that NASDAQ rebound back through the 50 day EMA, but volume was mixed, coming in lower on the NASDAQ gain while edging higher on the NYSE. Disappointing volume on NASDAQ, the lowest trade in a week. Thus the recovery was a nice show but not necessarily the kind of substance that turns the tide, something mirrored in the advance/decline line at 1.7:1. Not bad at all, but just not a powerful move that overcomes the distribution to this point.
We are not debunking the move. NASDAQ was at a point it had to show a rebound and it made the move along with SOX. SP600 was strong and indeed the other indices moved higher as well with many new breakouts and good rebounds off of breakout tests. With oil falling pretty hard and energy stocks under pressure, it was very good to see the market post across the board gains and solid leadership even without energy stocks that have held the fort for the market. Again, not bad but it does not put NASDAQ into calm waters for easy sailing ahead.
THE ECONOMY
Same store sales post a rebound with late Easter, rising gasoline costs.
March was generally crappy for retail sales with teen buyers in hibernation after a long run of mass consumption. The April sales show that consumption is not over as the teens roared back (AEOS +19%, PSUN +14%) and even department stores enjoyed gains (JWN +7.3%).
A lot of the buzz was tied to WMT's 6.8% sales gain (4% to 6% forecast) after a dismal 1.4% showing. COST was up as well, rising 7%. These gains in the discounters were heralded as indications gasoline was having little or no impact upon consumers. After all, WMT, COST, and other discounters primary customers have less money to spend on other goods when gasoline eats up more of the budget.
Two key points. First, while prices were rising during the month, the big spike to $3/gallong and beyond did not become widespread until the final week of the month. Thus we likely did not see the full impact of $3/gallon gasoline in April. It hit late, and the month was bolstered by a late Easter that brought out a lot of buyers versus March.
Now WMT was not out saying that its sales were going to slow due to higher gasoline prices, something it was saying back after the 2005 storms hit. That might possibly lead you to conclude that WMT does not see higher prices impacting sales. Unlike after the 2005 storms, however, WMT doesn't have the costs associated with closing stores and then getting them re-opened and re-stocked. In addition, discounters such as WMT are now heavily in the business of selling gas.
Discounters planned well or just got lucky.
This brings us to our second point: WMT and the discounters are somewhat 'energy proofing' sales by selling gasoline as they sell everything else: cheaper. Sam's Clubs and Wal-Mart Super Centers mostly all have gasoline stations, and these stations typically undercut the competition by 3 to 5 cents. That has been a huge draw to the chain as gasoline prices rise. COST reported a surge in sales and specifically cited its returns from gasoline sales as bolstering its April sales. It is an ingenious move these discounters have made in the interim between the last oil spike and the current one: if their customers are not going to spend as much on discretionary items because they have to buy gas, then sell gas and at least make some profit on that. As with everything else the discounters sell, they can undercut the competition and draw the customer in, doing a volume business. Indeed, we have heard the reports of lines stretched around the block to get to Costco gasoline pumps.
Thus in the months ahead, as gasoline sells around the $3/gallon mark, we have to add a grain of salt to the gas selling discounters results, at least to the extent we want to conclude that sales remain strong for discretionary items. With the addition of quantity gasoline sales to their bottom line, the discounters have somewhat insulated their sales from rises in gas prices. Of course, if prices get to the level where the consumer cries 'uncle,' then gasoline sales are not going to protect even these discounters.
Oil finding a barrier at $75/bbl as gasoline demand stagnates at $3/gallon.
Oil has rallied to $75/bbl twice in the past month and both times it has faded back rather abruptly from that level. After an intraday run at $75 this week oil reversed Wednesday on the gasoline inventory data and fell similar to a stone Thursday, losing $2.34/bbl and falling below $70. Gasoline surged over $2/gallon in futures trade, but Thursday closed at $1.99.
As we know, gasoline inventories jumped 2.1M bbl last week. Initially we attributed that to refineries coming back on line and getting over the ethanol switchover. That is likely part of the equation, but we also now know that gasoline demand was flat for the week after growing week after week. In other words, once gasoline hit $3/gallon consumers started to cut back. Demand flattened, inventories rose, and some of the upside pressure on oil faded. Once again it looks as this $75/bbl and $3/gallon combination is the point where consumption habits alter.
Thus in the absence of outside events working to push prices higher, e.g. a major world producer going offline, this may be the barrier we surmised it would be. Thus the May sales report is going to be much more important, particularly if gasoline holds near $3/gallon. Many are ignoring or discounting gasoline's impact at $3/gallon, but the data below the headlines are telling the tale to come as opposed to a rebound in sales from a weak March, bolstered by a late Easter.
THE MARKET
MARKET SENTIMENT
VIX: 11.86; -0.13
VXN: 14.94; -0.52
VXO: 11.19; -0.05
Put/Call Ratio (CBOE): 0.64; -0.27. Significant decline in put activity. Something to watch over the next few sessions.
Bulls versus Bears:
Bulls: 45.4%. Bulls continued their second week of decline, falling from 48% and 53.2% before. After a month climbing close to the 55% level considered bearish, a much needed decline. It rose from 42.3% on the low this cycle, a level below the prior lows in May and October 2005. It is already heading back down to that level.
Bears: 25.8%. Faded slightly from 26%. Just a one-week blip higher thus far after declining for a month as bulls rose simultaneously. Rebounded from 24.5% the prior 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: +19.93 points (+0.87%) to close at 2323.9
Volume: 2.108B (-0.5%). NASDAQ volume fell back close to average as NASDAQ gapped higher and rallied back through the 50 day EMA. That is the lowest trade in 8 sessions, a disappointing showing given the significance of the move. That means that investors were not buying off on the move in droves.
Up Volume: 1.428B (+289M)
Down Volume: 627M (-309M)
A/D and Hi/Lo: Advancers led 1.68 to 1. Decent but as with volume, not indicating a wholesale move back into technology after it has lagged for two weeks.
Previous Session: Advancers led 1.3 to 1
New Highs: 242 (+72)
New Lows: 30 (-36)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ did what it had to do, i.e. recover the 50 day EMA (2314). Solid price move but volume, while staying above average, was off the mark of the strong trade seen the past two weeks. That left the move in the relief bounce category for now. Indeed, it tapped the 18 day EMA (2326) on the high and could not move any further. Good to see NASDAQ get back over the 50 day and stop hanging out in such a bad neighborhood, but it is hardly out of the woods.
SOX (+1.30%) continued to provide the best leadership for techs, continuing its move off the 50 day EMA (514) for the second session. It has made a higher low in its ongoing base, continuing to build higher. There is some resistance near the 530 level, and after a good week it will likely do some backfilling. Nonetheless we are seeing some strong moves from leaders that took a breather for a few weeks and are now rebounding (e.g., CYMI, WFR, LRCX).
SP500/NYSE
Stats: +4.4 points (+0.34%) to close at 1312.25
NYSE Volume: 1.736B (+0.83%). Volume edged higher, but as noted earlier this week, NYSE has shown solid volume for the past three weeks, with many upside sessions occurring on upside days. Contrary to NASDAQ, NYSE has more strong upside sessions to offset the distribution suffered early in April. NYSE trade continues to swell, but that is also attributable to energy stocks that mostly reside there. It is good to see the trade, but we also need to see stocks outside of energy making breakouts on volume. That is starting to occur once more, and it is good to see both the large caps, and smaller caps (mid and small) working higher together.
A/D and Hi/Lo: Advancers led 1.68 to 1. Identical to NASDAQ. Solid but not raising any eyebrows.
Previous Session: Advancers led 1.73 to 1
New Highs: 235 (+8)
New Lows: 98 (-11)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 rebounded from the Wednesday selling, but it is all within a rather narrow range that is holding near support at the 18 day EMA (1304) as it works laterally. It has formed something of a reverse head and shoulders pattern the past 8 weeks with a higher right shoulder; that suggests an upside breakout is coming. There is positive accumulation in the current pattern.
SP600 (+0.92%) bounced nicely off the 18 day EMA (394.81) test made the past two weeks. Upside volume as it continued higher as the small caps, despite lagging the large caps a bit, are once again ready to breakout to a new all-time high. Nice to see the move even as the energy stocks had a tough session on dropping energy prices. A move over 401.51 takes it to a new all-time high (closed at 400.39).
DJ30
The blue chips continued to lead, breaking to another new post-2002 high. Volume faded but it has been strong the past week as DJ30 moved higher. It cleared the recent highs that had stalled it, and is now just about 120 points from an all-time high (11,561). It appears destined to try that level on this move.
Stats: +38.58 points (+0.34%) to close at 11438.86
Volume: 334M shares Thursday versus 380M shares Wednesday. As noted, volume has held above average on this entire move, a very good indication of continued accumulation. Thus the lower volume Thursday was nothing nefarious.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
The first data from April has been strong, continuing the solid economic performance from Q1. Friday we will get another look as the April jobs report is released. That is always a lynchpin for the talk regarding the Fed's stance on the economy and rate hikes. Jobs, however, have nothing to do with the amount of liquidity in the economy. More jobs are good. We are more productive, we have more tax revenues to pay for all of the unconstitutional programs the federal government funds, crime goes down, and notably, inflation does not jump because more people are working. Yet, jobs and the related prosperity and happiness are feared as being inflationary. Not unless every person in the country is working and there is so much extra money in the system that wages are bid up 50% would there be enough excess demand to cause inflation.
That said, it will be ignored Friday. Strong jobs report bad; weaker good. Big brother (the Fed) is watching. Prediction: outside of a major collapse or 300K jobs, the jobs report tomorrow won't change the Fed funds futures contract for the May meeting and won't significantly change the June contract (now at about a 48% chance of a hike in June). The May hike is baked in. If the April data stays strong the June hike will get baked in early in June.
What is likely to happen is the bump and run action at $75/bbl oil and $3/gallon gasoline will continue, having a cooling effect on the economic activity. While the results are still early and many are still glowing over the early April data, we are seeing economic drag similar to the fall 2005 when prices hit $3. It is not as defined because the climb has been overall slower, i.e. no spike after the storm when everyone realized production platforms were destroyed and refineries were down. Nonetheless, at $3/gallon habits are changing.
The big question with that change is how significant an economic impact it has. We use $75/bbl as our benchmark, but it is not that precise; if oil hits $75.01 it is not going to precipitate an economic meltdown. If there is a big event that jumps oil over $75/bbl in a significant way the effects will likely be quite detrimental to the economy and thus the market before the economy shows the impacts. The market moved well Thursday as oil fell back from $75 and below $70. To us that shows the significance of that higher level: the market can live with oil below that level because it senses demand holds up below that level. There is simply not a lot of rope left to play with at this level.
The Thursday action was encouraging as NASDAQ rebounded through the 50 day EMA, following SOX higher. SP600 bounced as well. Those leaders needed to return to the rally and help the large caps, thus avoiding a market heading in opposite directions. We continue to see leaders pop back up after the market took a bit of a defensive turn the prior two weeks, the classic example being semiconductor leaders that stalled out, faded a bit, and now have resumed their upside moves. As noted above, it is good to see other sectors coming back and helping out even as energy struggles.
NASDAQ still has work to do, trying to come back from a really ragged range the past four weeks. It made a start Thursday and we will see if that gets some more nurture Friday. The thing we like is how the leaders across the market responded, moving higher from good patterns and good pullbacks. The jury is still out on how hard the economy is taking the $3/gallon gasoline, but the market will be the primary indicator for that. NASDAQ is still struggling and the action remains choppy and volatile day to day, but we like the leadership we see. With SP600 moving toward a new high, SOX recovering nicely, the Dow transports hitting a new high, DJ30 hitting a new post-2002 high, and SP500 ready to do the same once more, we will continue to look for solid upside opportunity in stocks that continue to set up nicely.
Support and Resistance
NASDAQ: Closed at 2323.90
Resistance:
The late January highs at 2325
2328 from the May 2001 peak
2332 is the October/March up trendline.
The 18 day EMA at 2326
The January high at 2333
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 50 day EMA at 2314
2300 from the April intraday lows.
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 1312.25
Resistance:
1311 is the March intraday resistance on this move.
The October/March up trendline at 1313
1315 is the May and May 2001 peaks
1317, the recent intraday highs from April.
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 1306
1297.57 is the recent February high.
The 50 day EMA at 1297
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 11,438.86
Resistance:
11,452 from December 1999 peak
11561 is the DJ30 closing high
Support:
11,425 from April 2000 peak
11,417 from the recent April highs.
11,401 from the September 2000 peak and the recent intraday highs
11,350 from the May 2001 peak is giving way.
The recent March highs at 11,329 to 11,335
The 10 day EMA at 11,363
The 18 day EMA at 11,316
11,200 is the October/January/February up trendline.
The 50 day EMA at 11,197
11,159 is the February high.
11,137 is the last peak from the February top.
11,044 is the January high.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
May 1
Personal Income, March (8:30): 0.8% actual versus 0.4% expected, 0.3% prior
Personal Spending, March (8:30): 0.6% actual versus 0.4% expected 0.2% prior (revised from 0.1%).
Construction spending, March (10:00): 0.9% actual versus 0.4% expected, 1.0% prior (revised from 0.8%)
ISM Index, April (10:00): 57.3 actual versus 55.1 expected, 55.2 prior.
May 3
Factory Orders, March (10:00): 4.2% actual versus 3.7% expected, 0.4% prior
ISM Services, April (10:00): 63.0 actual versus 59.4 expected, 60.5 prior
Crude oil inventories (10:30): -0.226M prior
May 4
Initial jobless claims (8:30): 322K actual versus 310K expected and 315K prior
Productivity, preliminary, Q1 (8:30): 3.2% actual versus 2.8% expected, -0.3% prior (revised from -0.5%).
May 5
Non-farm payrolls, April (8:30): 200K expected, 211K prior
Unemployment rate, April (8:30): 4.7% expected, 4.7% prior
Average workweek (8:30): 33.8 expected, 33.8 prior
Average hourly earnings (8:30): 0.3% expected, 0.2% prior
Consumer credit, March (3:00): $4.1B expected, $3.3B prior
End part 1 of 2
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