|
|
us stock market, trade stock
* * * *
5/08/06 Technical Traders Report
* * *
Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: NGPS; VARI
Trailing stops: ADS
Stop alerts: BOOM; DIOD
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 mixed as oil backs off further.
- Gasoline peaking near term after a brush w/$3/gallon.
- Merger in mortgage industry another signal of a housing top.
- Another big name tech warning (Dell) to rattle NASDAQ around some more.
Mergers, lower oil fail to generate further upside.
Even with news of two mergers (WB & GDW; TMO & FSH) and again lower oil (closed 69.77, -0.42, helped by reports of a letter from Iranian president to Bush) stocks were softer pre-market. Those two are positives, but word was out that the Bank of Japan was going to raise rates. We have heard that story for close to a year so who knows how accurate yet another proposed rate hike citing is, but it was enough to put a headlock on the dollar once more, and that hampered the market's attempt to continue the upside move from last week.
Stocks were mixed from the start and remained mixed for the entire session. NASDAQ tried to lead, holding positive most of the session, but its 0.1% gain was hardly a major breakthrough. SP500 was tired and it closed modestly lower while SOX gave back some of its gain as well. SP600 and DJ30 both posted modest gains.
Basically it was a backfilling session after the gains to end last week as investors try to get the lay of the land ahead of the Wednesday FOMC rate announcement and statement. The statement is the big wildcard this time, even more so than in the past, because Bernanke, the champion of the more open and transparent Fed, got his fingers burned with his pause talk that he felt the market got wrong. It didn't, but it is the Fed chairman's prerogative to be wrong. Anyway, he doesn't want to give the wrong impression about being an inflation wimp, so we are leaning toward a statement with more of the same from last time. The pause that we expect to commence in June will be a 'surprise' in that it will not be discussed much, at least by the Fed, prior to the announcement at that Fed meeting.
Technically the day was a stall out following a pretty solid end to last week that saw DJ30, SP500 and SP600 break to new post-2002 highs. Volume was lower across the board and breadth was basically flat. NASDAQ is in no-man's land, midway in its 5 week range after bouncing off the bottom at 2300 on lower and lower volume. It could use a bit of a fade to consolidate the move, make a higher, low and then try and prove the original bounce was not just a relief move. SOX faded as well, but as noted last week it could use a bit of back test as well to set up the breakout over the April highs.
In sum, the not a bad day as the market could use a bit of a breather to better set up the next move. The internals were as flat as the market. We saw some very solid moves, however, even as the overall market sagged a bit, always a good sign for a continued market move higher. The action was good through the session, but after hours another big name tech stocks warned, this time DELL. As with MSFT at the end of April, NASDAQ has a challenge from a mega-cap tech that won't meet expectations. Cost-cutting is blamed, but the story for all of these mega-cap stocks is a similar one: the huge growth is not there anymore and thus any increased costs or impacts on profits cannot be offset by growth. Very similar to our economy when you think about it: we have to have growth to pay for all of the straws stuck into the public punchbowl.
THE ECONOMY
Gasoline softens after brush with $3+/gallon.
Last week we learned that gasoline demand started to decline two weeks back when prices breached $3/gallon. Oil had hit $75/bbl once more and gas contemporaneously touched $3/gallon. That was enough to stall out demand a bit. In the fall after the storms, demand stalled as gas spiked quickly higher. This time gasoline's climb was slower, and thus some thought that the consumer would adapt. Seems the water torture technique had the same effect at roughly the same price level; demand dropped and prices, both oil and gasoline, have backed off.
The Lundberg survey Monday also suggested that prices have peaked . . . for now. That does not mean oil and gasoline prices are heading lower longer term. This is the second time oil has hit near $75/bbl and the second time it has fallen back from that level. That creates a bit of resistance at $75 and could be the start of a double top. Still too early to make that call.
There is one call we can make, however. If anything transpires to hamper supply of either, prices will jump right back up. We were anticipating $3/gallon oil this summer, and it hit it in April, far ahead of any storm. When oil started its run toward $75 we were concerned gasoline would follow and it did. Last week there was some help from the first rise in gasoline inventories in 9 weeks. If that continues this week oil might weaken a bit more. There are already storm systems and waves out off the west African coast, however. The first one that ignites and heads toward the Gulf of Mexico will stir memories of last summer and give gasoline another goose higher. We need to get through a storm or two that misses the mark for the energy market to adjust to a new storm season. For now we are going to see just how much more gasoline drops and then go fill the tanks.
Merger in mortgage market suggests additional proof of a housing market top . . . among other items.
Historically mergers occur in sectors after big runs. Buffet buys when prices are low and then waits. Companies wait until their stock prices are high and then buy. They want to use the 'currency' of their stock to make the purchase. Of course if the company they are purchasing is solid and has grown its stock price as well, then there is really no advantage of waiting for your 'currency' to increase in value.
Thus companies tend to make acquisitions when the acquiring company feels its stock is high enough to give it a 'good buy' and the acquired company feels prices are inflated enough above actual values to go ahead and cash out. Historically that often is one of the best signals of a peak in the current cycle. You can argue the merits and values of the deal all you want, but historically the majority of mergers occur close to a sector peak. Down the road it could be a very solid merger and that was the argument of the leaders of the two principals on Monday. They look 10 or more years down the road. That was not the point, however, of several analysts: near term it is another indication of a housing market peak.
It isn't all just mergers pointing to a peak.
There are others. In some parts of southern California we hear inventories have risen 85% above 2005 levels. Even as the summer air conditioning season hits we are hearing from many air conditioning contractors of a sudden slowdown after a busy spring. Maybe this is just a momentary pause; it is too early to really tell, but it also coincides with the second run to $75/bbl and $3/gallon gasoline. That means it bears watching as oil and gasoline prices ease back from that recent spike.
THE MARKET
MARKET SENTIMENT
VIX: 12; +0.38
VXN: 14.77; +0.34
VXO: 11.02; -0.03
Put/Call Ratio (CBOE): 0.94; +0.12. The jump was disproportionate to the market action, suggesting that option players used the market softness to exit some positions.
Bulls versus Bears:
Bulls: 43.9%. Falling further, down from 45.4%, 48% and 53.2% at the peak in April. Very nice decline continued even as the market trended higher (though NASDAQ did fall). The market chop was taking its toll. After a month climbing from 42.3% back 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.
Bears: 28.6%. The NASDAQ decline and overall market chop and volatility had its effect on bears as well, rising from 25.8%. Not as dramatic a move as the Bulls as they are still well off their high at 33% on the last cycle. Up from 24.5% on the low this time around. The 33% high hit last cycle topped the prior two highs (30% in May 2005, 29.2% in October 2005) that gave way to strong rallies. The 20% level and below is considered bearish. It started this move just above 20%, the threshold level.
NASDAQ
Stats: +2.42 points (+0.1%) to close at 2344.99
Volume: 1.795B (-10.87%). Volume fell significantly below average as NASDAQ basically jogged in place. No accumulation on the way up and now it is set for a test after the Dell warning after hours. Volume is likely to surge as Dell is sold similar to when MSFT sold off.
Up Volume: 859M (-508M)
Down Volume: 889M (+292M)
A/D and Hi/Lo: Decliners led 1.1 to 1. Modestly lower on an upside session. Kind of tells the story of the session for NASDAQ.
Previous Session: Advancers led 1.7 to 1
New Highs: 236 (-37)
New Lows: 42 (+8)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ showed a bit of resolve Monday, rallying to 3252 on the high, continuing its recovery over the January 2006 high (2333). Just a bit of resolve, however, as it gave up most of the gain by the close, showing a loose doji on the candlestick chart. Combined with the even lower volume that signal suggests the rebound from support at 2300 and back through the 50 day EMA (2317) is going to get a test. With Dell warning after hours, that is a pretty sure bet. NASDAQ just did not have a lot of power on the rebound move given the weakness in large cap techs. Now quite a few semiconductors still look solid, and that should provide some support. Near term, however, NASDAQ is ready to make a test of the recent move, a real challenge given the low volume rise. A move back to the 18 day EMA (2329) or the gap up point (2323) to fill the gap are logical points to look at if this rebound is going to gel and hold at a higher low.
SOX (-0.67%) faded after testing the April highs near 530 (hit 530.66 Monday). After a solid move off the 50 day EMA (515.23) last week where it made a higher low, a bit of a test here is appropriate. Looking for a move down to the 10 day EMA (521) and then a hold there; that would be the best signal of a continued move higher to come. It will have its work cut out for it as many of the big name chips after hours (e.g. INTC, AMD) were selling after hours on the Dell warning.
SP500/NYSE
Stats: -1.1 points (-0.08%) to close at 1324.66
NYSE Volume: 1.554B (-7.87%). Volume slipped below average for the first time in three weeks, and given the modest decline to slight rise in the indices a perfect match for the action after a nice breakout last week.
A/D and Hi/Lo: Advancers led 1.03 to 1. Flat breadth on a flat day.
Previous Session: Advancers led 2.82 to 1
New Highs: 292 (-83). As one reader pointed out to us, the high/low differential has improved significantly on this move versus prior breaks higher. Still would like to see some 400+ days overall.
New Lows: 69 (+9)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 took a day off after the Friday breakout, posting the first below average volume in three weeks. Nice easy test, still well above the breakout point over 1317. SP500 is pretty much showing excellent action as it built up for the breakout on strong volume and then the breakout itself. A further pullback to test 1317 is a natural point to backfill the breakout and set up the next move higher.
SP600 (+0.10%) posted a modest gain, continuing the Friday breakout to a new all-time high. SP600 shifted its uptrend higher with the higher low at the 18 day EMA (396.77). If this shift holds, SP500 should find support near 399 to 400, the upper channel line and the 10 day EMA (399.01). We note that energy stocks came back after a weaker start, and if they continue to rebound SP600 will reap the benefit of that as well.
DJ30
After barnstorming higher last week DJ30 took the day off; not bad, posting a gain as it took a breather. Lower volume and a doji on the candlestick suggests a pullback of some sort, but DJ30 seriously broke higher starting Thursday, and that still leaves it some upside on this run after a pause Monday. Either way a solid move and a nice, easy day off Monday to take a breather.
Stats: +6.8 points (+0.06%) to close at 11584.54
Volume: 309M shares Monday versus 338.9M shares Friday. Volume remained above average as the industrials continue to attract plenty of trade, part of that liquidity discussed over the weekend.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Wholesale inventories are out Tuesday, and it would be hard to measure the lack of market moving impact this report will have. Of course, it is a very interesting piece of data; rising inventories could be an early signal of a slowdown in Q2. It could also mean an inventory ramp as businesses expect more orders to come. After a long expansion at some point inventories start to rise as orders start to wane. We will be watching, but either way its impact upon the market is likely to be nominal.
The headlines will focus more on the usual suspects, i.e. oil, gasoline, Fed predictions, and now Dell's earnings warning. Dell said that aggressive cost cutting to match competition proved more damaging to the bottom line than anticipated. You could almost guess this was coming: several 'great deal' emails from Dell in the mailbox. There will likely be some good deals on the website if you peruse it this week. Outside of that, Dell is a mega-cap NASDAQ 100 stock ($61B) that will move NASDAQ because NASDAQ is a market cap weighted index and Dell has a 2B share float. Monday it traded 31M shares, above average. Mere child's play compared to what trade will be Tuesday.
That means NASDAQ will be tested Tuesday. As noted above, it gapped higher Friday, and a fill of that gap will be coming at some point; may as well be sooner than later and let NASDAQ get back to trying to join the other indices with a post-2002 high. Given the NASDAQ rally was on lower and lower volume, a test back that roughly holds the gap would be a positive development if NASDAQ can hold the line there and start the rebound once more.
This comes at a relatively decent time; the market is ready for a test after the breakouts last week, and this will simply push NASDAQ to go ahead and test. How it responds is the key given that low volume bounce last week; it is a positive that the rest of the market bounced on higher volume last week. The chips will be a key indicator; some of the big names tied to PC sales (INTC, AMD) were down after hours. Chips have set up well, providing some technology backbone. How they test back and hold will tell us more about technology's attempts at joining the new high list with the NYSE indices.
As this pullback is something we anticipated would be needed, we will be looking at stocks using it to test their recent moves, holding support, and then rebounding. We saw some good action from some stocks today despite the market pause, and we will be looking for others to give up some short term profit taking, hold near support, and continue on their way. There is also another aspect to this: while the Fed is not necessarily an earnings watcher, it now can see that two big technology names are not posting the anticipated earnings. More fuel for the debate as to pause or not to pause.
Support and Resistance
NASDAQ: Closed at 2344.99
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:
2336 is the October/March up trendline.
The January high at 2333
The 18 day EMA at 2329
2328 from the May 2001 peak
The late January highs at 2325
The 50 day EMA at 2317
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 1324.66
Resistance:
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:
1317, the recent intraday highs from April.
1315 is the May and May 2001 peaks
The October/March up trendline at 1315
1311 is the March intraday resistance on this move.
The January high at 1303
The 18 day EMA at 1309
The 50 day EMA at 1299
1297.57 is the recent February high.
The late January peak at 1285
Dow: Closed at 11,584.54
Resistance:
11,638 from January 2000
11,723 is the January 2000 closing high
11,750 is the January 2000 intraday and all-time high.
Support:
11561 is the DJ30 closing high
11,452 from December 1999 peak
The 10 day EMA at 11,435
11,425 from April 2000 peak
11,417 from the recent April highs.
11,401 from the September 2000 peak and April 2001 highs
The 18 day EMA at 11,369
11,350 from the May 2001 peak
The March 2005 highs at 11,329 to 11,335
The 50 day EMA at 11,226
11,208 is the October/January/February up trendline.
11,159 is the February high.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
May 9
Wholesale inventories, March (10:00): 0.5% expected, 0.8% prior.
May 10
Crude oil inventories
Treasury budget, April (2:00): $116.5B expected, $57.71 prior
FOMC statement (2:15): Hike to 5% expected. No mention of pause expected.
May 11
Business inventories, March (8:30): 0.5% expected, 0.0% prior.
Initial jobless claims (8:30): 315K expected, 322K prior
Retail sales, April (8:30): 0.8% expected and 0.6% prior
Retail sales ex-autos, April (8:30): 0.9% expected, 0.4% prior
May 12
Export prices, April (8:30): 0.2% prior.
Import prices, April (8:30): -0.3% prior
Trade balance, March (8:30): -$67.0B expected, -$65.71 prior
Michigan sentiment, prelim (9:50): 86.0 expected, 87.4 prior
End part 1 of 3
|
us stock market
trade stock
|
