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world stock market, us stock market
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5/11/06 Technical Traders Report Update
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Technical Traders Report Subscribers:
Full report issues Saturday
MARKET ALERTS
Targets hit alerts: GLG; PLLL
Buy alerts: None issued
Trailing stops: CYMI; CTXS
Stop alerts: MCHP; QCOM; BLBK; SMSI
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 gets inflation jitters the day after Fed's 'yet', sells hard.
- Commodities getting the look of a blow off top.
- Oil rebounds on new Nigeria issues, demand rebound.
- Retail sales get sliced by higher energy costs.
- Everyone is a bear after Thursday, but NYSE trends are still in place
Market sells when Fed does not give it any pause indication, yet sells Thursday on fears inflation is getting out of hand.
No one ever said the market is not fickle in the short run. It typically gets it right with respect to economic direction, but it can be an up and down process as it makes the adjustments. Wednesday investors closed stocks lower after the Fed failed to give any concrete indication of a pause to come in June, something of a 'we don't care about inflation' statement.
Thursday stocks sold again. You can say the Wednesday selling simply gained momentum, but we were hearing from our brokers and from floor traders that customers were talking about inflation. Commodities have surged and indeed are exploding higher over the past three weeks. Bond yields rallied to 5.15% twice but faded; Thursday they smashed through that resistance (5.16% close). Spreads between the TIPS (Treasury Inflation Protected Securities) and the 10 year bond are widening; at 277BP it is the widest since inception.
As discussed Wednesday, these indications can be signs of inflation. They can also be caused in whole or in part by other sources. Healthy economies, with or without inflation, tend to have higher bond yields because demand for money increases as an economy continues to expand. The commodities surge is in no small part driven by the rush of money around the world as it looks for a new home. The spread shows strengthening versus the near deflation encountered after the 2000 crash.
Thursday the market was in no mood to look for the bright side of life explanations. It was in a sour mood and was going to view all data from that prism. When new flare-ups in Nigera were reported and demand for oil and gasoline rose last week as prices dropped, oil and gasoline surged. That added yet another reason for investors to sell.
And sell they did. It looked like another relatively easy test for NYSE indices early in the session, but that idea ran into trouble in the morning when they undercut the 18 day EMA and then could not retake them late in the session. NASDAQ paid the price for a low volume rally, falling through the 50 day EMA and diving lower on a volume spike. Volume spiked on NYSE as well. Breadth was horrid, approaching -4:1.
Distribution returned but was most noticeable on NASDAQ as it plowed through support. Many of the commodities, materials, infrastructure and industrials did decently, but they too sold, coming under pressure late in the session. Surprisingly, consumer retail held up well also. Although most stocks were lower it was not a total slam. Many are still in their uptrends as are the NYSE indices. Even NASDAQ with its break lower is still holding its longer term breakout though more and more techs and medial stocks are breaking lower.
Commodities screaming higher, accelerating the run the past three weeks.
We are talking about the actual commodities such as gold, copper, steel, etc., not the underlying stocks. Tin has jumped from $2.40 to $4.20 in six weeks. Gold has made the move from $500 to $700 even faster. The moves are going ballistic across the board. If it is a commodity it is attracting a lot of that world liquidity that I looking for a home.
Now rising prices are not bad. Prices rise in economic recoveries. US stock prices started to rebound in late 2002 as investors sniffed out the economic recovery. They have continued higher as the economy expanded. The problem arises when you have just too much momentum, too much liquidity chasing stocks. In the second half of 1999, after a bull run from the mid-nineties, NASDAQ staged a massive 74% run. This was on top of the bull market rally from 1995. Money was quite loose even though the Fed was tightening rates. It pumped tens of billions into the money supply ahead of Y2K. No one needed the money so it was pushed into stocks. Big run ensued. Then the Fed tightened up money supply and the market seized up. After a 74% run in 5 months there was nothing left to put into stocks. Major volatility as volume spiked on an upside day and was immediately followed by a big distribution spike the next day. That was the money leaving the market as well as the last late to the party investors coming in. When the process was over, major collapse.
That is just one example of a process that occurs with individual stocks on a regular basis. Any market, any stock, anything traded at all will have these spikes when there is too much excitement, too much enthusiasm, and too much money. The typical indicia are a long upside run, even run of the mill stocks surging higher, lots of hype, and an explosive move that puts the prior upside rallies to shame. Hmmm. Sounds pretty familiar.
Timing is always the key. The commodities are not selling off yet. The related stocks are holding up quite well also. They did weaken noticeably just before the close Thursday, however, and that caught our attention. Indeed, it was one of the reasons we finally decided to write about this. When the related stocks start to beak down, it is time to watch out for those commodities that have been on a screaming tear higher. They may continue higher near term; there is an awful lot of money looking for investments, and commodities are one of the big momentum plays.
THE ECONOMY
Oil and gasoline prices move right back up.
Two things had major impacts on oil and gasoline Wednesday and Thursday. Wednesday gasoline inventories were much higher than expected, coming in with a 2.4M bbl build. That was the second consecutive build after 9 weeks of losses. Additionally, refinery utilization rose to 90.2% from 88.8%, the first rise above 90% since December. That should have helped but it didn't. Why? Because as price faded back from $3/gallon, demand returned. Lack of demand two week's back helped bring prices lower (along with that first upside build in over two months), and it had the reverse effect this week.
Thursday more bad news out of Nigeria. A US oil worker was killed. Two other workers were abducted despite having an escort party. After a quiet period the stakes have been raised. That pushed oil to 73.32, up 1.19. Once again oil is heading toward $75/bbl. Thus far it has found a barrier there. If Nigeria or any other major producing country stumbles in its production, however, $75/bbl won't stop the price climb. If oil does go over that level, however, demand will drop. Gasoline is just below the choke point, but it is rising rapidly once more (futures closed at $2.22, up 0.05). It once again stalled out demand at $3/gallon, and if it goes there again it will likely do it again.
April retail sales come in below expectations as gasoline prices climbed.
The 0.5% gain was less than the 0.6% expected and the 0.6% in March. Researchers said that sales were strong in the first half of the month but then consumers started to reallocate their funds for purchases when gasoline prices spiked. Even with stronger gasoline prices (up 4.6%) boosting sales, overall sales were lower. That shows the impact of the higher gasoline on the consumer.
Building materials fell 1.6% as well as interest rate increases take their toll on the housing market. Autos were lower, furniture declined (related to housing), and department stores were down. On the positive side of the ledger, electronics rose 0.4%, sporting goods/hobby/books climbed 0.8%, and general merchandise gained 0.8% as well.
Thus it was not a shut out but even with that big jump in gasoline sales, overall sales declined. There is erosion from gasoline prices. Now they backed off in early May and that brought some demand back. Prices are approaching $3/gallon once more, coming in later in the month once again. That is going to do its damage. Indeed, as gasoline futures prices rise many are out filling up containers at the stations that have not immediately raised their prices. That shows that there is definite price inelasticity as gasoline approaches $3/gallon.
THE MARKET
MARKET SENTIMENT
VIX: 12.49; +0.71
VXN: 15.72; +0.87
VXO: 12.2; +0.8
Put/Call Ratio (CBOE): 0.96; +0.13. Popped up into the 90's on the selling, but it did not spike over 1.0. That means there is still plenty of slack in the anxiety level.
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: -48.05 points (-2.07%) to close at 2272.7
Volume: 2.529B (+22.91%). Big jump in volume as NASDAQ fell through the 50 day EMA and never looked back. Distribution after the low volume rally off the early May test of 2300. The sharp volume increase through support shows institutions bailing on technology. Payback for a low volume rally can be brutal.
Up Volume: 292M (-346M)
Down Volume: -2.146K (-1.385B)
A/D and Hi/Lo: Decliners led 3.9 to 1. Pretty damn ugly.
Previous Session: Decliners led 1.58 to 1
New Highs: 133 (-55)
New Lows: 97 (+27)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ managed to rally back to hold the 50 day EMA (2316) Wednesday, but Thursday it moved through that level like melted butter. The downside move accelerated after the break as often happens: the initial break gets those sitting on the fence to go ahead and throw in the towel. After this initial dive there is a rebound test because as with everything in the market, the short term overreacts. That does not mean NASDAQ is going to rebound and move back up. It simply means the initial surge of sellers has been sated, and after a rebound to test the break lower the selling likely resumes until NASDAQ can find a bottom and put in some basing action. There is some support at 2250ish where a band of closes from late 2005 and the February and March lows. Given the severity of the dive, NASDAQ is likely to find some support in this area and try a rebound; it is getting a bit oversold. The low volume move higher and the return of distribution, however, indicate a bounce won't succeed in resuming the move higher. It will likely need some basing action to set the foundation for another sustained move higher.
SOX (-2.28%) continued its slice lower, galloping down to the March lows just above the 200 day SMA (491). From nice base to last place in two sessions. Want to see how it holds at this support level. A victim of the slowdown in some of the mega cap stocks. Important test here at the 200 day.
SP500/NYSE
Stats: -16.93 points (-1.28%) to close at 1305.92
NYSE Volume: 1.81B (+12.28%). Strongest volume in three weeks as the NSYE indices suffered a pretty severe pullback. Distribution here as well, but really the first one on a month. In short, the NYSE indices can find support and recover from this.
A/D and Hi/Lo: Decliners led 3.69 to 1. Not as bad as NASDAQ but definitely not good. NASDAQ looks back compared to it, but the NYSE looks bad itself even if compared to NASDAQ.
Previous Session: Decliners led 1.23 to 1
New Highs: 192 (-28)
New Lows: 141 (+38)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 looked to be in another orderly test of near support early on, coming back to the 18 day EMA (1312) and holding at that level mid-morning. Looked as if it was going to make a stand at that support until the bottom fell out after a 35 minute lateral move just over the 18 day. It got whacked, falling all the way for tap at the 50 day EMA (1301). From good to having to hang on here at key support. Still in the uptrend overall though it did violate its October/March up trendline.
SP600 (-2.25%) was really hammered, dropping through the 18 day EMA (399.45) that held it up in its last test to end April and start May. So much for shifting the channel higher. It is now heading down to the 50 day EMA (390.66) and the up trendline at 390. A touch day, but as with SP500, still in its uptrend.
DJ30
The blue chips suffered some distribution as well, fading back to the 10 day EMA (11,502) as the index tests its impressive 700 point run from mid-April. We mused that it was overextended and due for a pullback to work out some of the froth. Man was it ever. The plunge on rising, above average volume is not a great development, but still a strong uprend for now.
Stats: -141.92 points (-1.22%) to close at 11500.73
Volume: 322M shares Thursday versus 284M shares Wednesday. Some distribution Thursday as DJ30 gave back some gain. Not a nice, easy test, but serious selling. Shows that EVERYTHING got hit Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Wednesday it was NASDAQ that had to make a stand. It stumbled and flopped on its face Thursday. Friday SP500 and SP600 get the nod as SP500 holds its 50 day EMA and SP600 tries to avoid falling that far. They have to arrest their decline and also apply the brakes to NASDAQ. Tall order with the distribution just now coming to the market again. NASDAQ is a bit oversold having lagged on the move higher and leading on the turn back down. It may get short term sold out/oversold before SP500 and SP600 figure out just what they are going to do.
Thursday after the close everyone was a bear. The bears were out saying I told you so and many others that were not bears prior to Thursday were starting to talk the talk. In its perverse way that is the start of the healing process. The drop was so sharp NASDAQ is likely to give us a relief bounce after a bit more downside to start the session. Not many will want to buy ahead of the weekend, but the shorts will want to cover on a further drop, and that will help the rebound emerge. Thus we will likely see SP500 test its 50 day EMA, SP600 make a pass at that level, and NASDAQ sell a bit further before a modest bounce as the shorts close some positions for the weekend.
That leaves the Friday session in the 'gotta see what happens' category. The market did not like the Fed's statement, but it has yet to be shown if it is because the Fed is seen as too hawkish in not talking about a pause or is too soft on inflation. There were plenty of shows buzzing Thursday about a spike in inflation and the end of the rally, whatever that means. Some said it meant the current rally needed a correction. To others it meant the entire trend higher the past 3.5 years is over.
To us it meant the market is on shaky ground, even shakier than before. With NASDAQ and SOX diving even if the NYSE indices hold the line and rebound we have a seriously divided market. That is the start of the end. A market can continue to rack up gains even with its indices pointing in different directions, but that is a sign it has serious issues and the resolution is often distasteful. In 1997 and 1998 the large cap nifty fifty tech stocks took over while everything else stunk the place up. Ultimately that led to the bear market that year where the tables were reset, making the way clear for the run in 1999 and into early 2000.
This fall was so fast it did not allow many downside plays to set up. We exited positions that were breaking support, and on a relief bounce Friday we will look at marginal positions that are flirting at a breakdown and likely cut them loose. We will have to see how the rebound takes shape compared to the hard drop, but we are not holding our breath for NASDAQ. As for the NYSE and its stocks (and those outside of the big techs that are getting stomped), they are still in position to hold near support and continue their upside moves despite the Thursday distribution. They will have to show us what they have as well, however; after a pretty violent move you want to see the bleeding stop. Picking solid stocks that have used the selling to make orderly tests of their prior moves is an excellent way to use this type of pullback. We want to see them hold and then start back up. Simple enough, but it is easy to get lost in the noise.
Support and Resistance
NASDAQ: Closed at 2272.70
Resistance:
2278 is December 2005 intraday high.
2288 from December 2000 low.
2300 from the April intraday lows.
The 50 day EMA at 2318
The late January highs at 2325
2328 from the May 2001 peak
The 18 day EMA at 2329
The January high at 2333
2339 is the October/March up trendline.
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:
2273 is December 2005 closing high.
A minor peak at 2249
2240 is closing low in February range.
The 200 day SMA at 2228
S&P 500: Closed at 1305.92
Resistance:
1311 is the March intraday resistance on this move.
The 18 day EMA at 1312
1315 is the May and May 2001 peaks
The October/March up trendline at 1316
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 50 day EMA at 1301.40
1297.57 is the recent February high.
The late January peak at 1285
1280 from prior price points
Dow: Closed at 11,500.73
Resistance:
11561 is the DJ30 closing high
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:
The 10 day EMA at 11,503 is trying to hold
11,452 from December 1999 peak
The 18 day EMA at 11,432
11,425 from April 2000 peak
11,417 from the recent April highs.
11,401 from the September 2000 peak and April 2001 highs
11,350 from the May 2001 peak
The March 2005 highs at 11,329 to 11,335
The 50 day EMA at 11,267
11,240 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): 02.% actual versus 0.5% expected, 0.9% prior (revised from 0.8%)
May 10
Crude oil inventories: +300K. Gasoline +2.4M
Treasury budget, April (2:00): $116.5B expected, $57.71 prior
FOMC statement (2:15): Hike to 5%. No mention of pause, but rate firming may 'yet' be necessary.
May 11
Business inventories, March (8:30): 0.7% actual versus 0.5% expected, 0.1% prior (revised from 0.0%).
Initial jobless claims (8:30): 324K actual versus 315K expected, 325K prior
Retail sales, April (8:30): 0.5% actual versus 0.8% expected and 0.6% prior
Retail sales ex-autos, April (8:30): 0.7% actual versus 0.9% expected, 0.5% prior (revised from 0.4%).
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 2
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