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us stock market, trade stock
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6/07/06 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: PPDI; XTO; JCP; ANN
Trailing stops: PLLL
Stop alerts: WFT; CC
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:
- Early bounce continues Tuesday rebound, but then stocks roll over to close at session lows.
- Greenspan returns to talk oil, says starting to have its economic impact.
- Fed sticks to script, more hawkish Fed-speak from Gynn.
- Market languishes back to May lows, still in game, but SOX is leading lower once more.
Stocks cannot make any hay out of Tuesday afternoon rebound.
Futures were up on the heels of the Tuesday afternoon recovery, but after a solid move into lunch stocks peaked and spent the rest of the session trying to find a low. There was no real economic news, at least not any different from an average day. Oil was lower because Iran was receptive to US overtures, the SIA upped its 2006 chip sales forecast, and oil inventories were better than expected. Modest upside impetus and the market took advantage of it.
In the afternoon the Fed was talking tough again, this time in the form of Mr. Gynn, and while nothing new, it kept the new 'tough guy' image transformation ongoing. The Fed is acting just as Bernanke acted with his pause then retraction about face: lots of statements about avoiding overshooting, the negative economic impacts of a housing decline and high energy prices, but now completely different, tough guy talk in an almost frantic attempt to change its identity from 'sensitive, caring Fed' to 'rude, tough, we are going to kick the @#&**@&! out of inflation' Fed. America has not seen such a makeover since Al Gore last ran for President.
It may or may not have been the Fed comments that took the market lower. It was not out of character at all given the failure to post a follow through last week and the selling the past three sessions. Whatever the cause, the action was weak with a higher start and a close at the lows. The fade was on lower volume, however, as the selling intensity backed off from Tuesday distribution. Further, NASDAQ, SP500 and SP600 held above their recent lows in this sell off, keeping the faint heartbeat of the 'rebound' and bottoming attempt going.
SOX, however, did not hold its recent lows, bombing lower once more, unable to find support at last summer's trading range. SOX weakness has foreshadowed weakness in the market as a whole, and thus while the other indices make modest attempts to hold the recent lows, their lack of strength makes them vulnerable to further selling on the heels of the semiconductors.
Thus the market technically can still find a bottom here given the higher sentiment indicators and the reversal attempt that continues to hang on by a thread, but it has to overcome more chip weakness, the start of summer, and its own lack of leadership. Healthcare, medical, and biotech are trying to show some backbone, but they are not making any major breaks higher just yet. That is hardly enough to stem the weakness in the rest of the market.
THE ECONOMY
Mr. Greenspan goes back to Washington.
Greenspan was dropping pearls of wisdom on Congress again, this time in a hearing regarding US oil production and use. Those hoping to get any insight on inflation were left torturing the meaning of Greenspan's reference that oil was finally starting to impact the economy. Was that impact inflation or retarding growth? Some hawks took it as the former, but in the context of his entire speech and commentary it is clear that Greenspan was referring to negative impacts on economic activity.
One of the favorite bashing points regarding the energy market is how the financial markets are adding to the price per barrel. He lauded that as the market at work, helping usher in change in the market as well as cushioning the adjustment process when it occurs. Higher prices drive producers to increase production and look for alternatives while driving demand lower, and the financial market speculation has accelerated that process significantly.
Of course none of this will change the minds of those who are against 'big oil', believe oil prices are manipulated, and only view higher prices as hurting the poor. They certainly do hurt, but change typically does, and unfortunately after 40 years of no energy policy we are now in a situation where risk and market factors have added about $30 to the cost of each barrel. That is a lot of pain and certainly an energy policy would not have resolved the entire issue. Further, one of the reasons we don't have an energy policy is simply because in our society we don't like to the federal government to dictate what we can and cannot drive. Of course it unconstitutionally ventured into healthcare, retirement, welfare, education, state-owned museums, roads, parks, etc., so this is, sadly, hardly virgin ground. Thus once more we kind of liked Greenspan's anti-regulation spin; if only he had stuck to that with respect to inflation.
Gynn fires more warning shots about inflation, threatening more hikes even as the economy slows.
Gynn ominously warned a nervous Georgia crowd that core inflation may have already breached the Fed's upper limit on the range of inflation growth. The Fed may have to 'reset' policy if indeed the outlook had worsened. That is why Gynn sees the inflation risk as 'elevated.' Let's see, is that yellow or orange? I always get those confused. In any event, I had better go tape up my windows with plastic sheeting, get some bottled water and 'D' cell batteries, and get the kids back inside.
Gynn unwittingly summed up what is wrong with our Federal Reserve and what has been wrong with it since inception. He stated the "consequences of a negative surprise on inflation are greater than the negative surprise on output."
Of course, that statement went unchallenged and indeed we even heard some pundits parroting it later on the financial stations. Let's take a look. Let's use the most recent example, say 1999 and 2000. The Fed was absolutely certain that inflation was just around the corner and it said it so often that it became common parlance. We had to fight inflation because it was so close, and heaven forbid we see a wisp of inflation smoke on the horizon. So the Fed jacked up rates and drained money supply, adding that final 50 BP kick to the economy's privates in May 2000. They certainly avoided inflation. They tanked the market then the economy, and both tanked hard. Millions of jobs lost in the span of less than 2 years, many of which are now overseas. Trillions in retirement accounts lost. Those jobs and that money has not been recovered, yet the Fed is tilting at inflation again even as the economy starts to fade.
Now you tell me: would you have preferred even a hint of inflation to that cataclysmic meltdown in the stock market and the economy? And it was cataclysmic. Some will say it was a shallow recession. Well, if you were coming down from 3% growth, -1% if fairly shallow. When you are jumping off a 10% growth level, however, the fall is horrific. As we noted, we lost jobs that will never return, and retirement funds that simply will not be recovered in the time left for many of our citizens before retirement. Call me crazy, but the Fed should stop and see what 16 hikes, $70/bbl oil, $3/gallon gasoline, and a spendthrift Congress have got in store for us. Ask ANY retiree who had their retirement account wiped out in 2000 to 2001 whether they would risk a bit of inflation versus what happened to them. We have asked many, and the response ranges from laughter to tears but the answer is the same one.
THE MARKET
MARKET SENTIMENT
VIX: 17.8; +0.46
VXN: 23.54; +1.36
VXO: 17.05; +0.45
Put/Call Ratio (CBOE): 1.12; +0.13. Back over 1.0 again, thirteen sessions in fifteen.
Bulls versus Bears:
Bulls: 42.6%. Backing off as expected given the market struggles, down from 43.8% the week before and well off the 46.3% hit three weeks back. Still heading lower after the April peak at 53.2% and almost matching the 42.3% hit on the last low. We don't expect it to improve much after this week given the volatile action that saw some improvement but no clear return to buying. The current level is also just above the levels hit in May and October 2005 that saw new upside runs.
Bears: 29.8%. Solid climb in bears as the selling and increasing volatility worked against positive market attitudes. That is up sharply from the 27.6% as week that was also a solid jump from 25.3% the week before. Bears have now topped the 28.6% hit on the interim high on this selling. The 33% high hit in March topped the prior two highs (30% in May 2005, 29.2% in October 2005) that gave way to strong rallies. Bears are again at a level that could help drive this current rally attempt further. The 20% level and below is considered bearish. It started this move just above 20%, the threshold level.
NASDAQ
Stats: -10.99 points (-0.51%) to close at 2151.8
Volume: 1.989B (-7.96%). Lower trade was a continued bonus in the selling. Not much of a bonus, kind of like getting 50 cents off your next purchase of a case of Dr. Pepper in the bottle cap game.
Up Volume: 575M (-145M)
Down Volume: 1.375B (-41M)
A/D and Hi/Lo: Decliners led 1.22 to 1. Very modest downside breadth.
Previous Session: Decliners led 1.52 to 1
New Highs: 72 (+19)
New Lows: 97 (-45)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
Not a great session as NASDAQ rolled over from early gains, closing at the low. More bearish action, but that has been flip-flopping each session of late as NASDAQ tries to find some sort of bottom. Lower, below average volume helped. Modest breadth helped. Holding above the up trendline (2147) helped. Lots of help, not a lot of action. It made a new closing low but held above the intraday lows from two weeks back and Tuesday. That keeps it in the game for a rebound, but the game is in the late innings.
SOX (-2.36%) tried an upside move on the SIA data that forecast greater sales in 2006. That had the same success as the NASDAQ move with SOX closing on the low. More important, SOX broke through the recent lows in this pullback, plowing new ground and breaking below the summer 2005 range. SOX declines have occurred prior to the rest of the market falling as well. This is not a good development despite the other indices still hodling their lows in this pullback.
SP500/NYSE
Stats: -7.7 points (-0.61%) to close at 1256.15
NYSE Volume: 1.835B (-3.03%). Volume faded as SP500 slipped through its 200 day SMA, but trade remained above average. Better to see less volume, not great that it was still over average.
A/D and Hi/Lo: Decliners led 1.5 to 1. Rather modest. The small caps had a better day and it showed.
Previous Session: Decliners led 1.83 to 1
New Highs: 29 (+1)
New Lows: 101 (-35)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 rallied up through the 10 day EMA near 1270 but then gave it all back and more, closing at the lows and below the 200 day SMA (1260) once more. It basically matched the closing low from two weeks back, and that keeps it in the range of the lows on this pullback, now its second test of that first May low. It has not breached the intraday low set two Wednesdays back (1245.34), and as with NASDAQ, that keeps it in the realm of trying another comeback. Has a lot to prove here to show that has any credibility.
The small cap SP600 (-0.47%) punched in a new closing low on this decline as well, but unlike SP500, it remained above its 200 day SMA (365.23), the level tapped twice intraday during this selling. As with the other indices, this action (holding above the prior lows and the 200 day SMA, lower volume) keeps it in the bottoming attempt. That is about all you can say.
DJ30
DJ30 is just not holding up as well as its brethren. It held the line better initially, but Tuesday it broke below the lows in the pullback and Wednesday it closed near the Tuesday intraday low. It has broken through the neckline of its 11 week head and shoulders pattern and is rapidly approaching the 200 day SMA (10,871), just a short jog lower. That will DJ30's next key test after giving up 11,100 on Monday.
Stats: -71.24 points (-0.65%) to close at 10930.90
Volume: 333M shares Wednesday versus 385M Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
Jobless claims and wholesale inventories on Thursday, kind of a ho-hum economic agenda. Of course we can expect more from the new, improved inflation fighting Fed. When you are trying to convince someone of something in this day and age it seems the more you repeat it the more credence it has ('you know, I heard that too!').
At this juncture the market is getting pretty much immune to the daily Fed ritual. Sure the market sold off Wednesday, but it held the range and volume remained lower, so it was no new surge of negative vibes. At this juncture the market should be getting a bit oversold as well. The market bounced back and forth on the data, given the 'data dependent' Fed, but now it has been under the gun for three sessions and has managed to hold above the prior lows.
The energy stocks continue to fail, and when a stock fails there is a reason, namely lower earnings forecast by the market. If the energy stocks continue their fall that would be the projection, and what would cause slower earnings? A profits tax or simply lower product prices. What causes lower product prices? Less demand. Less demand, the kind that would really cause a sell off, would be more in tune with an economic slowdown. We are playing them to the downside as we watch how this potential economic indicator shakes out. Steel stocks are also selling along with metal prices. This drop in the actual commodities and the stocks based on them is potentially a market indicator as well, and it is not the same kind as just negative feeling about the future. With the bond yield curve back to flat you have another indicator that the economy is going to slow significantly more than most think; it is, of course, factoring in further and likely too much Fed action, and thus the flat curve.
That said, the market often finds its bottoms when things look their worst and they don't look that great right now. Sure volume was lower and the indices are holding above the lows (at least on some), but the last rebound failed, the Fed is rampaging (or at least trying to give that appearance), the economic data is so-so, gas prices remain high, summer is here, yadda, yadda, yadda. In short, there is enough to find a bottom if it wants it. Stocks are set to make the move and sentiment is good enough - - that is, if this is just a continuation of the prior run. We felt better about that before this last dip in the process, i.e. after the volume reversal took place. The failure of a follow through. the failure of any really solid emerging leadership, and SOX' dump lower are problems. In short, the market has to prove it wants to go up from here, and do so with some panache this time.
Until then we will keep tabs on the upside plays that look solid and will also continue to play the downside as they present themselves. The fact that just about everyone has given up on this bottoming attempt even as NASDAQ, SP500 and SP600 still hold above their lows is intriguing itself, and thus we don't give up on the chance. Certainly we will see another relief bounce attempt at some point in the near term.
Support and Resistance
NASDAQ: Closed at 2151.80
Resistance:
2162 to 2155 from December 2005 and September 2006
2184 is the 10 day EMA.
2185 to 2182 is the September 2005 peak and interim high from November 2005.
The 18 day EMA at 2203
2205 is the December 2005 closing low
2218 is the August 2005 peak before the sell off through October 2005.
The 200 day SMA at 2230
2240 is closing low in February range.
The 50 day EMA at 2251
2273 is December 2005 closing high.
2278 is December 2005 intraday high.
2288 from December 2000 low.
2300 from the April intraday lows.
Support:
2146 is the August 2004/April 2005 up trendline.
2100 from the early and mid-2005 peaks.
2050 is some support from the summer 2005 lows
S&P 500: Closed at 1256.15
Resistance:
The 200 day EMA at 1260
1272 to 1268 is the November and December 2005 closing highs and March 2006 closing low
1280 from the April lows
The 18 day EMA at 1275
The late January peak at 1285
The 50 day EMA at 1285
1297.57 is the recent February high.
The January high at 1303
1311 is the March intraday resistance on this move.
1315 is the May and May 2001 peaks
1317, the recent intraday highs from April.
The October/April trendline at 1320
1324 to 1329 from the October 2000 lows.
Support:
1250 to 1248 from the November and December 2005 lows.
1245 from the August 2005 high & May intraday low; 1241 from the September 2005 high
1240 is an old trendline from the August 2003/August 2004/October 2005 lows.
1225 from the March 2005 high
Dow: Closed at 10,930.90
Resistance:
10,965 from Q4 2000 and November/December 2005
10,985 is the March 2005 intraday high
11,044 is the January high.
11,097 to 11,137 is the last peak from the February top.
The 10 day EMA at 11,114
11,159 is the February high.
The 50 day EMA at 11,215
11,283 is the 'hump' in the attempted double bottom.
The March 2005 highs at 11,329 to 11,335
11,350 from the May 2001 peak
11,365 is the October/January/February up trendline.
11,401 from the September 2000 peak and April 2001 highs
11,417 from the recent April highs.
11,425 from April 2000 peak
11,452 from December 1999 peak
Support:
10,931 is the November 2005 high
10,890 is the December 2005 closing high.
10,871 is the 200 day SMA
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
June 5
ISM Services, May (10:00): 60.1 actual, 60.0 expected, 63.0 prior
June 7
Crude oil inventories (10:30): +1.6M prior
Consumer Credit, April (3:00): $3.5B expected, $2.5B prior
June 8
Initial jobless claims (8:30): 330K expected, 336K prior
Wholesale inventories, April (10:00): 0.5% expected, 0.2% prior
June 9
Export prices, May (8:30): 0.7% prior
Import prices, May (8:30): 0.0% prior
Trade balance, April (8:30): -$65.0B expected, -$62.01B prior
End part 1 of 3
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