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world stock market, us stock market
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6/13/06 Technical Traders Report Update
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Technical Traders Report Subscribers:
Full report issues Wednesday
MARKET ALERTS
Targets hit alerts: ALTR
Buy alerts: X; VSH
Trailing stops: None issued
Stop alerts: GISX; JCP; VARI
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:
- Indices test broken support but roll back over on rising volume.
- Economy called too strong for a recession. Heard that before.
- PPI tolerable, but real story is CPI on Wednesday.
- Retail sales in line though it took strength in gasoline sales to offset other weaker areas.
- After all of this inflation talk and related selling, the CPI may be the trigger to finish the selling and start the rebound from this leg.
Another modest bounce attempt fails as stocks continue the second leg lower.
The PPI was not as bad as feared, and that helped bring futures back to modestly positive ahead of the open. On the heels of the Monday US selling the rest of the world sold very hard. Nikkei lost 4.1% and Hong Kong was off 2.5%. Europe was sporting 2+% declines as well. Talk was of a huge US sell off as well, but that did not happen. Yes the US market sold, but not as severe as yesterday.
Indeed, that was what the foreign markets reacted to. When you look at the trade results the past few weeks, the US is making its own wake and the rest of the markets are following its lead. Of course, those markets were up more so they are getting clubbed more as well. Why are they selling if their emerging economies are so strong? Because if the US slips into recession, where the heck are those countries going to sell there goods? At some point the Chinese, Indians and some others will realize they can buy and consume their own goods, but the world markets are telling us that is not the case yet. Thus, when the US Fed talks the same talk that launched a dozen recessions, well, the rest of the world markets take notice.
From the open the US markets rallied, but they could do nothing with it. NASDAQ cleared 2100 resistance (just broken Monday) while SP500 tested the breach of its trendline. That move failed in the first hour and that set the stage for the rest of the session. A second bounce attempt midmorning saw NASDAQ tap 2100 and then roll over for an afternoon of selling. Some shorts covered in the last hour, but even that died out as the indices thudded back down to the session lows at the close.
Volume jumped sharply back above average on both NASDAQ and NYSE. Breadth remained squarely negative at roughly -3:1 on both exchanges; hard to believe, but that was better than Monday. Simply put, the market continued lower in its second down leg since early May. It is getting oversold with this second leg now roughly matching the size of the first run lower on both NASDAQ and SP500. Thus it is getting to the point where we will see some short covering, though we will likely see another surge downside given the strong selling volume Tuesday, and then an intraday reversal to come back and make yet another test before the third leg lower. Yes, they tend to come in threes.
THE ECONOMY
Annoying 2000 comparisons.
Last night we discussed how the Fed was into repeating history yet again. Tuesday we heard some more flashbacks that made us wonder if we were watching re-runs from early 2000. Sadly, it was not the case.
With the market diving and an inverted yield curve (5.00% 2 year versus 4.96% 10 year Tuesday) there is of course talk of an economic slowdown or recession. I believe some of that talk appeared on these pages more than a few times. There is still a lot of talk, yeah verily, most of the talk, about how strong this economy is and how there is not going to be a recession, no way, no how. The certainty of the comments as they scoff at the idea of recession makes you cringe as you listen.
This is just what we heard in 2000 when the Fed was virtually unchallenged in its characterization of the economy as overheated with a runaway consumer fueled by the mythic stock market wealth effect (Greenspan later admitted he did not really know if a wealth effect really exists). 'White hot,' 'red hot,' 'runaway consumer,' 'irrational exuberance' (okay, that one was from 1996, but it was oft-repeated) were bandied about daily as the Fed and its ring-kissers from the economics schools tilted at the shadow of inflation. There wasn't any inflation, but damn it, it had to be there. Well, we will never know if it would have shown up because the Fed killed off the expansion and sent us into recession before any real sign showed up.
Tuesday we heard many economists saying 'full speed ahead,' 'no recession coming,' and other famous last words. An economic slowdown of the sort we are likely to now see most probably would have been avoided but for the Fed getting too involved in tilting with inflation. It most certainly needed to get rid of the easy money due to its overly aggressive rate cuts that it left too low too long, but the last couple were questionable at best, and now the Fed is talking of 50 BP and 6% rates even as the economic cycle slows of its own accord and now under the weight of this tighter money (and renewed threats of tax hikes).
The laundry list of slowing economic sectors grew a bit Tuesday when small businesses forecast slower growth ahead. Oh yes, retail sales slowed as well, only kept aloft by the surging gasoline prices that offset declines in other areas. There was also a report that the slowing housing market was slowing the construction industry as well. No rocket science there, but it seems overlooked as sensible people continue to act nonsensically in the face of a slowing economy.
Fed seems to think there is no recourse other than falling on the sword.
There was a lot of sane talk in 2005 about the problems for the economy if housing slowed and gasoline prices remained high. The Fed and its officials recognized the detrimental impact of those was more significant than that of some inflation. After Bernanke opened his mouth too many times and got his chestnuts roasted he has been reformed. Problem is, a reformed anything is at least a pain the neck and at worst downright dangerous. Bernanke and his new edict to his henchmen falls in the latter category as the diving stock market and swooning bond rates tell us.
How is the Fed going to deal with the dilemma now? Apparently it feels it has to go the Viet Nam route, i.e. burn the village to save it. After getting slapped around some because of the foolish comments and loose lips, the Fed apparently now feels that it has to fight inflation first and alone, then consider the other ramifications. Its mandate, however, is not just price stability, but price stability while maintaining high economic growth. If you burn the economy down to stave off inflation, you are not living up to your mandate.
Indeed, throughout its history, the Fed has gotten itself (and by extension, all of us) into trouble when it focuses solely or primarily on prices. The reason is that prices are lagging, and history shows they typically peak shortly after the economy makes its peak. That does not mean the economy is rolling over, just that its expansion days are mostly behind it. Prices follow along, and after the economic peak they too fall IF we don't get cute and stall out the supply side of the economy ahead of demand.
The key, obviously is to dry up the liquidity that can give rise to inflation without overly harming the economy and its growth path. The Fed had done a reasonable job of this and was indeed at the point it needed to stop. Now this talk about 50BP hikes to come and an unknown number of hikes still needed has sent the market into its 'shoot first and get out of town before the Fed wrecks things' mode.
PPI tame overall, up on the core.
The PPI rose 0.2% after April's 0.9% jump on those high energy prices. A 0.4% gain was expected, so rah-rah. The core rose 0.3%, however, ahead of April's 0.1% and the 0.2% expected. The year/year core was up a measly 1.5%, matching April and down from February and March (1.7%).
The report gave the 'oh yes, there has to be hikes to fight this inflation' crowd ammo to talk up the financial stations, but 1.5% yearly price growth is nothing. The problem is gasoline and other energy costs, but unless the Fed wants to fight energy prices by sending the US into recession, then it is foolish to hike rates because energy prices are higher. Indeed, would the US citizens want to take one for the world, helping lower oil prices by forcing us into recession? China will make any deal with any devil to get oil reserves. You think it would mind us helping it get more commitments for the limited amount of oil production on the world market? Nope, even if it meant a few less exports to the US near term.
What the report showed us and others that are not caught up in the inflation hype is that the Fed got faked out of its jock strap by the blow off top in commodities that it and others said was a sign of inflation. Rick Santelli, one of the two sane and knowledgeable people on CNBC, agreed Tuesday the reaction of the markets and the economic data showed that to be the case or it showed the Fed was just out to hammer the economy for its own reasons. Gold is down to 566 (-44 Tuesday), off its high at 730 less than a month ago. We are not saying there is no inflation, we are just saying that they have overestimated it or purposefully overplayed it based on the data, the condition of the current economy, and the issues confronting it ahead. The market is saying the same thing.
The CPI will tell more of the story, but it will also be a lagging story; remember, prices lag the economy, and with retail sales slowing, housing slow, energy prices still too high, etc., the prognosis is not one of a new burst of economic growth.
Retail sales hold up on the back of high gasoline prices.
Retail sales managed a 0.1% gain in May, down from the 0.8% in April, but beating the flat growth expected. The gain was led by the 1.9% rise in gasoline sales as autos dropped 1.6%, furniture fell 0.5%, and building materials lost 0.4%.
It is not that the consumer has crapped out. Electronics sales rose 0.4% and the BBY reported strong flat screen television sales. There is pressure from higher energy prices, and it is eroding some confidence in buying. Not to the level to create major alterations in spending patterns, but that is subject to the emergence of a big storm that threatens or damaged gulf production or other producers overseas going off line or curtailing production for political or other reasons.
THE MARKET
MARKET SENTIMENT
VIX: 23.81; +2.85. Jumping over the 2004 peak at 22.67. That is the highest level since volatility started to fall after the October 2002 bottom and early 2003 test of that bottom.
VXN: 25.73; +0.09. Still well below the 2004 and 2003 highs in contrast to VIX.
VXO: 22.25; +2.56
Put/Call Ratio (CBOE): 1.34; +0.38. And yet another close over 1.0. Just about lost count, but it is right at 16 closed in 20 sessions above that level. A sign of a lot of turnover and turmoil in options as funds buy protection, speculators bet on the downside, etc.
Bulls versus Bears:
Bulls: 40.2%, continuing the slide from 53.2% at the April peak. This is down from 42.6% the prior week, 43.8% the week before, and 46.3% hit before that. It has surpassed the 42.3% hit on the last low. The current level puts it below the May and October 2005 readings that saw new upside runs.
Bears: 31.5%. Still climbing, up from 29.8% the prior week (27.6%, 25.3% before). Still just below the March high at 33% but above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). The 20% level and below is considered bearish. It started this move just above 20%, the threshold level.
NASDAQ
Stats: -18.85 points (-0.9%) to close at 2072.47
Volume: 2.571B (+31.96%). Volume surged as NASDAQ continued lower. It is trying to put the brakes on the selling with trade spiking while NASDAQ tried to move positive. It failed to hold that on the session, but this was more of a cathartic rise in trade as the second downside leg comes closer to its end.
Up Volume: 633M (+465M)
Down Volume: 1.868B (+93M)
A/D and Hi/Lo: Decliners led 2.81 to 1. Better than Monday levels, but still very skewed to the downside.
Previous Session: Decliners led 4.02 to 1
New Highs: 44 (-12)
New Lows: 278 (+105). Getting there. Another run lower that pushes new lows close to 400 would be beneficial in ending this second leg lower.
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ rallied back up to 2100, the support it held last week intraday and then broke Monday. It failed twice at that level Tuesday and then rolled over on very strong volume. It closed just off the session lows, but even with this selling NASDAQ shows some signs of trying to bottom on this second leg. Higher volume, more new lows, some short covering late though that failed. Strong, strong volume after a dive lower (this one two weeks worth) shows the selling is getting washed out. Another run lower toward 2050 would likely do the trick and start NASDAQ on the rebound to end this leg of the selling.
SOX (-0.53%) showed signs of life itself, or at least signs this leg is closer to an end. It was positive much of the session, managing to show a doji by the close. It is in a strong downtrend below the 10 day EMA (450.15), but after this selling it looks ready to rebound and test the resistance in the move lower.
SP500/NYSE
Stats: -12.71 points (-1.03%) to close at 1223.69
NYSE Volume: 1.991B (+23.1%). Similar to NASDAQ, volume surged to the highest in three weeks as the NYSE indices dove lower. Getting cathartic here as well given the sell off to this point.
A/D and Hi/Lo: Decliners led 3.25 to 1. Still ugly as sin as the mid-caps (-1.65%) helped lead the dump lower.
Previous Session: Decliners led 3.53 to 1
New Highs: 16 (-8)
New Lows: 293 (+114). Also getting there, but need to see some 400+ new lows. With the indices diving, we could see that in one more down session that ends this leg of the sell off.
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 rallied up to the August 2003/August 2004/October 2005 trendline (1240), cleared it on the high (1243), but then rolled over to close at the session low. Looking for a move to 1215ish to 1205ish to finish this part of the leg. The high volume as it sold hard indicates the selling is reaching a climax here. Not a bottom this time but more than likely a rebound to test this leg. With the Fed still in the hawkish mode there is likely to be another downside move after a rebound this time. We remain open for a bottom and will watch for one forming, but for now this is classic; a lot of history repeating here.
The small caps were whipped again (-1.25%), diving further below the 200 day SMA (365). There is some support at 350, and as with the other indices, after a bit further run lower to test near that support this leg will likely be sold out and ready to rebound to test the break below the 200 day.
DJ30
The Dow continued its move below its 200 day SMA (10,877). It rallied up to test that level intraday and then sold off to close at the session low. Volume jumped on the Dow as well as it has peeled off 550 points on this leg, right at the number of points lost on the first leg lower. A move to 10,665 to 10,678 takes it to some soft support that could finally end this leg. As with the other indices, it is getting the look of being sold out on this leg.
Stats: -86.44 points (-0.8%) to close at 10706.14
Volume: 399M shares Tuesday versus 272.4M shares Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
The CPI is out and this is one of the reports that the data conscious market is watching closely. The market has sold hard into this number, matching the losses on the first leg in this downtrend. Tuesday volume spiked as stocks sold off, tried to rebound, but then faded back to the close. It looks to us as if this leg is getting done, kind of burned out by the surge of volume as the indices match their prior losses on the first leg lower. The shorts are starting to cover some and the volume is up.
Thus we think the CPI might act as the trigger. Maybe not one that the market says 'great' and surges back up, but perhaps the kind that the market seems to hate and sells off one more time, clears the pipes, and then starts the rebound to test this last leg lower. After all, this Fed and inflation story has been running now for awhile and is getting played out. The market has sold off on the news and just some more news on the subject, bad or good, will be too much to bear and the shorts will have to cover and that will start the rebound.
Thus with another surge lower early Wednesday we will be looking at closing some of the downside. They have had a good run and many, even the new ones, are already close to the target. Another push lower will find some targets and have others close. Would not hurt to lock in some gain on that move.
On the other hand, there is a lot of talk about the bottom. That tends to keep the bottom away. That also is an indication to us that another sell off will likely lead to a reversal and some saying the bottom has been found. It will likely only be a head fake for them as the market rebounds, tests the move, and then enters the third, and hopefully last, leg lower in this selling. Then comes the rebuilding process, but that is a ways off and we have digressed.
Support and Resistance
NASDAQ: Closed at 2072.47
Resistance:
2100 from the early and mid-2005 peaks held on the Thursday low did not hold but will likely be tested before too long
2140 is the 10 day EMA.
2150 is the August 2004/April 2005 up trendline.
2162 to 2155 from December 2005 and September 2006
The 18 day EMA at 2169
2185 to 2182 is the September 2005 peak and interim high from November 2005.
2205 is the December 2005 closing low
2218 is the August 2005 peak before the sell off through October 2005.
The 200 day SMA and the 50 day EMA at 2230
2240 is closing low in February range.
Support:
2063 is modest, soft support
2050 from the summer 2005 lateral range lows.
2045-47 from June and October 2005 lows and June 2004 highs
S&P 500: Closed at 1223.69
Resistance:
1240 is an old trendline from the August 2003/August 2004/October 2005 lows.
1245 from the August 2005 high & May intraday low; 1241 from the September 2005 high
1250 to 1248 from the November and December 2005 lows.
The 200 day EMA at 1261
The 18 day EMA at 1263
1272 to 1268 is the November and December 2005 closing highs and March 2006 closing low
The 50 day EMA at 1279
The late January peak at 1285
1297.57 is the recent February high.
1315 is the May and May 2001 peaks
1317, the recent intraday highs from April.
1324 to 1329 from the October 2000 lows.
Support:
1225 from the March 2005 high is giving way.
1213 from December 2004 high to 1215
1205 from the August lows
Dow: Closed at 10,706.14
Resistance:
The 200 day SMA at 10,877
10,890 is the December 2005 closing high.
10,931 is the November 2005 high
The 10 day EMA at 10,947
10,965 from Q4 2000 and November/December 2005
10,985 is the March 2005 intraday high
11,044 is the January high.
11,048 is the 18 day EMA
11,097 to 11,137 is the last peak from the February top.
11,159 is the February high.
The 50 day EMA at 11,158
The March 2006 highs at 11,329 to 11,335
11,350 from the May 2001 peak
11,401 from the September 2000 peak and April 2001 highs
Support:
10,678 to 10,665
10,705 - 10,965 from July/August 2005
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
June 12
Treasury budget, May (2:00): -$42.8B actual versus -$39.0B expected, -$35.4B prior
June 13
PPI, May (8:30): 0.2% actual versus 0.4% expected, 0.9% prior
Core PPI, May (8:30): 0.3% actual versus 0.2% expected, 0.1% prior
Retail sales, May (8:30): 0.1% actual versus 0.0% expected, 0.8% prior
Retail ex-auto, May (8:30): 0.5% actual versus 0.5% expected, 0.8% prior
Business inventories, April (8:30): 0.4% actual versus 0.6% expected, 0.7% prior
June 14
CPI, May (8:30): 0.4% expected, 0.6% prior
Core CPI, May (8:30): 0.2% expected, 0.3% prior
Crude oil inventories (10:30): 1.146M prior
Fed Beige Book (2:00)
June 15
Initial jobless claims (8:30): 320K expected, 302K prior
NY Empire State Index (8:30): 11.0 expected, 12.4 prior
Net foreign purchases (9:00): $69.8B prior
Capacity utilization (9:15): 82.0% expected, 81.9% prior
Industrial production (9:15): 0.2% expected, 0.8% prior
Philly Fed (12:00): 11.0 expected, 14.4 prior
June 16
Current account, Q1 (8:30): $223.0B expected, -224B prior
Michigan sentiment, prelim, June (9:45): 79.0 expected, 79.1 prior.
End part 1 of 2
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world stock market
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