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world stock market, us stock market
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6/15/06 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: GRMN; GILD
Trailing stops: None issued
Stop alerts: None issued
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:
- Wednesday rebound continues, fueled midday by 'all is well' from Bernanke.
- Confluence of news stories, technical underpinnings send stocks higher.
- Many are enamored with the rebound but this action is not typical for a healthy market and is identical to another time.
- Economic data stronger and weaker on Thursday.
- Expiration Friday may prove somewhat anticlimactic.
Morning rally becomes and afternoon romp higher when the market is told all is well.
Stocks gapped higher Thursday, continuing the Wednesday short covering bounce. There was a lot of news pre-market, with some stronger economic data and some weaker data basically offsetting one another. The real upside kicker, however, was the Bank of Japan opting not to raise rates, maintaining its 0% interest rate policy. After the central banks drained off much of the liquidity that helped fuel the commodity run and subsequent blow off top and the tough 'no tolerance' stance the US Fed had taken on inflation, this was a sign to world markets that maybe the gaggle of central money changers would get off their backs.
After that strong morning move, however, stocks went into a lateral stall for 3 hours. NASDAQ had moved through the 2100 level and SP500 back through its trendline, so they were still sitting pretty even with the lateral move. Then Bernanke spoke for the third time this week, and after all of the harsh talk he offered what the market viewed as an olive branch, saying that despite the increases in energy, those price increases were contained at the retail level. Basically Bernanke said that inflation was at manageable levels and everything was still under control.
The market loved this 'all is well' talk and shot higher into the close with the best two day moves from NASDAQ and DJ30 in years. All it took was some tough talk from Bernanke about inflation and that apparently rescued his manhood. Thursday he was seen as a reasoned, rational central banker with a firm grasp of the financial currents. Man, all it took was some bully talk about inflation and he turned from goat to hero. Of course, Bernanke was no more a hero or different man Thursday than we was a goat or an inflation weakling before the new 'get tough' policy launched two weeks back. The market had been overly slaughtered in its second leg lower during this selling and it was ripe for the rebound. Bernanke simply aided the move by once more offering an olive branch regarding inflation.
Many factors contributed to the advance.
Thursday resulted from a rather serendipitous merging of favorable news stories and technical underpinnings. The market had already sold off in the second leg lower of this sell off, matching the moves made on the first leg by Tuesday. Thus it was ready for a rebound, and indeed that rebound started Wednesday. That was the first technical factor.
It was still bouncing Wednesday on momentum, but was goosed by the Bank of Japan story and the relief all of the commodities felt on the news. The commodities speculation was skewered by world central banks, particularly Japan, siphoning off liquidity and thus taking away the feedstock for pushing commodity prices higher. All that excess money was going into the hot sectors, and that meant commodities. When the central banks pulled the money back in through money supply tightening along with rate hikes, the pipeline was shut and commodities dropped. When Japan announced it would still keep rates at zero, commodities got an extra shot in the arm.
The economic data was the right mix as well. Jobless claims fell below 300K for the first time in three months while the Philly Fed stormed past expectations (29.0 versus 11.0, 12.9 prior). In addition, net foreign purchases of US assets fell to $46.7B versus $70.4B in March. Those were downers for a market looking for the Fed to back off. On the other hand, Industrial production and capacity utilization were lower than expected and down from April (-0.1% versus +0.2% expected and 0.8% prior; 81.7% actual versus 82% expected and 81.9% prior). Those were not weak-kneed numbers, but they show a continued softening of key parts of the US economy. The net effect of this mixed data was neutral, i.e. it did not impair the relief bounce pressure that needed a release.
Finally, the Bernanke 'all is well' speech gave the market the cover it needed to continue higher. At this juncture Bernanke was not likely to send the market lower given his rhetoric was very tough to the point. His rather upbeat comments regarding energy driven inflation at the retail level and inflation being overall manageable, however, was viewed as quite positive after all of the harsh comments. He not only lived up to doing no harm, he fueled a strong 30 point afternoon move on NASDAQ, likely something he did not intend.
Technically, the market was oversold and had matched the point losses in the first leg lower in the current downtrend. In short, the second leg was through and the market was already rebounding as seen Wednesday.
Second, the June expiration is Friday, and we have seen some dramatic moves this week ahead of that event, and the Thursday rebound was no exception. Indeed, given the strong blow down in the market and brokers and floor traders were telling us that many of the puts bought as protection and for gain were actually being exercised. That means the shares were being bought, and that kept a strong bid under the entire market and helped fuel the upside as shorts covered and buyers chased stocks back up.
Third, this action is part of the sharp up and down action seen when a market is in transition. There are often violent moves up and down when we see a market trying to make a change, and combined with the other technical and news-related catalysts Thursday, the results were explosive.
In sum, the market was already set to rebound as seen Wednesday, and the news stories and additional technical reasons just added fuel to the fire, making a rebound into a sharp surge higher. Is it real or not? That remains to be seen.
Lots of 'what are you buying tomorrow' talk after the Thursday close.
There was something of a split Thursday as to the meaning of the rebound, but overall the financial stations and their guests were viewing the move as very positive and suggesting that a bottom had been formed. There was some glib and even smug comments about the 'superb' market and many guests were asked 'what are you buying tomorrow' on the assumption that this was nirvana and the buying bell had rung.
Maybe it has. That would not overly hurt our feelings. Of course you have to factor out hope and as much other emotion as you can and look at things realistically. This sharp up and down action may be only related to expiration, but such violent back and forth reversals are typically not indicative of healthy market action. It may mean nothing but option week gyrations and may indeed be the bottom. Worth looking at deeper, however, than just assuming the worst is over.
There was a sell off similar to this one in July and August 2004. Before the current selling that was the worst sell off since the October 2002 bottom. It recovered after just two legs lower, however, and it did so without putting in a double bottom or other pattern; just a sort of knifepoint turn. Again, maybe this is going to do the same here.
This time around, however, despite Bernanke's 'I am in charge here' speech (remember Al Haig after Reagan was shot?) the economy is another two years down the road, energy prices are up more than 50%, the Fed has tacked on 16 rate hikes, housing is no longer heading up, and instead of signs of improvement everywhere, there are signs the economy is slowing down. Commodities rallied for two years and then surged in a blow off move. The Fed is not done with rate hikes, and though the market took a reprieve Thursday, there is still talk of a 6% Fed Funds rate in the future as the Fed continues to fight the last inflation battle. Don't be mislead; Bernanke was not saying Thursday that the Fed was almost done. The entire FOMC is now harping about inflation, and Bernanke is stuck on the path of being the enforcer.
What does this mean with this market action? These are some pretty impressive moves up and down. NASDAQ fell 45 points on 5-30, then jumped 41 points on 6-1. It fell 50 points two sessions later. It tanked 44 points Monday and bounced 58 points Thursday. You can repeat the same basic track record with SP500 and DJ30 over the same time period. Lots of big up and down sessions, lots of back and forth.
Compare this with early 2000 and the moves then. NASDAQ dropped 200 points on 3-14-00 and then bounced 135 points. Down 188 on 3-20 and then up 101 points on 3-21. It sold off again on 4-3, down 350 points then up 179 points as it jumped back. Then the next session it was down 258 points. Down 355 on 4-14, up 218 the next session and another 254 the next just to sell off another 300 points to end the week.
Why go through this? Because as we have discussed the past couple of weeks as the Fed went on the attack, the similarities between those two times are close despite many denials. We hear the same old talk about the economy so strong nothing can hurt it. We hear the Fed talking tough about bringing down inflation even as it is clear the economy is no spring chicken and the Fed has already hit it with a five-fold increase in interest rates.
On top of that the market is the most volatile it has been since the last selling in early 2003 that tested the move off of the October 2002 market bottom in terms of the volatility indices. It has not been this up and down with selling and buying even in the early 2004 selling. That up and down action typically is not the sign of a healthy market, at least one that is ready to rally to new heights just yet.
It is also not a great time for a bottom. After the bear market and the recovery, the usual market calendar was off simply because the market was in recovery mode. It has spent a few years recovering and is back on the more 'normal' calendar. June does not typically churn out good bottoms.
As noted earlier this week it likely simply needs some more basing and another good sell off to really cement a bottom and let some leadership develop outside of the breakneck drops through support and this whipsaw rebound. We will say it again: we may be wrong. The market has turned on a dime before when it got the right news, but frankly, it is hard to see the news Thursday being the basis for 'the' turnaround.
All this means is that we have to be smart when approaching what is occurring. We were buying some upside Thursday as some solid stocks made solid moves. We still see many stocks, however, still well entrenched in downtrends despite the 2-day rebound and the ferocious upside move Thursday. As with the indices, they can always just keep on going higher without looking back similar to 2004. That, however, is not the norm, and as noted, there are substantial changes in the economy since then (e.g., energy, more Fed hikes, housing on the decline).
We have to be careful that the strength of the Thursday move does not lull us into an automatic belief the current correction is over. It was a bit early for a follow through session (by a day), and leadership is still scattered. Leadership is one of the primary ingredients in any recovery; without it even good looking moves and a follow through from the indices typically fails as many rebounds and follow throughs in the bear market failed.
By leadership we are talking about a lot of stocks in patterns ready to move higher, not stocks that led the move higher and then were in a train wreck and are now just rebounding. We have to acknowledge that many leaders have rallied a long way and are in late stage bases (having formed and broken higher out of 4 or more bases during this run). A stock can only climb like that for so long before falling by the wayside. The market then needs some fresh legs. This sell off is in the process of generating those future leaders. That is why on Wednesday we talked about a bounce here, another sell off, and then a bounce back with a follow through that allows leaders to finish their bases and start the breakout.
All told we just have to watch what the market is telling us and act from there. We can draw legitimate and accurate comparisons to other periods all we want, but ultimately we have to follow the market's lead and take what it gives.
THE MARKET
MARKET SENTIMENT
VIX: 15.9; -5.56
VXN: 19.47; -4.87
VXO: 14.79; -5.78
Put/Call Ratio (CBOE): 0.86; -0.26
Bulls versus Bears:
The two are converging, hitting their lowest ratio since March 2003 when the market followed through on a continued rally after spending three months testing the bottom off of October 2002 that ended the bear market. This is a positive and supports the strong move higher Thursday that started with the Wednesday rebound.
Bulls: 38.7%. This brings the bulls to their lowest level in this cycle, well off the 53.2% at the April peak. It 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: 34.4%. Big spike higher from 31.5% the prior week. That eclipses the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005).
NASDAQ
Stats: +58.15 points (+2.79%) to close at 2144.15
Volume: 2.301B (+6.75%). Volume moved back above average as NASDAQ rebounded sharply, a nice improvement over the so-so Wednesday volume as the techs started the rebound.
Up Volume: -2.146K (-1.465B)
Down Volume: 139M (-517M)
A/D and Hi/Lo: Advancers led 4.17 to 1. Very impressive, rivaling the selling breadth on the way down and a complete reversal from the weak showing Wednesday.
Previous Session: Advancers led 1.12 to 1
New Highs: 54 (+26)
New Lows: 75 (-160)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ gapped higher, tested the move, and then galloped higher to the close. It cleared 2100 with ease and now finds itself at the late May low just over 2150 (2159 closing). It is also right at the August 2004/April 2005 up trendline (2150). Those are key levels along with the 18 day EMA (2158) that stalled NASDAQ on its late May/early June rebound attempt. A bit better volume this time around as it makes the move. A good start to a recovery and now we see how it handles this pile up of resistance and the new little downtrend that started with the April top and the May rollover.
SOX (+4.15%) surged as well, moving to the 18 day EMA (458) on the close. This is the lick log for SOX as the 18 day acted as resistance on the early June bounce and sent SOX heading lower on the second leg. Watching this one closely as SOX was the downside indicator on the prior two legs lower. Expecting a continued move up through the 18 day but then we have to watch out for a reversal.
SP500/NYSE
Stats: +26.12 points (+2.12%) to close at 1256.16
NYSE Volume: 1.976B (+0.21%). Another strong round of volume as the NYSE indices surged right back up. The upside volume matched Tuesday downside volume as the indices dove lower that session. Strong volume.
A/D and Hi/Lo: Advancers led 4.26 to 1. Man what strong breadth as the small and mid-caps, doormats in the last part of the selling, surged back. Nothing quite like the part of the market with the most stocks making a move higher.
Previous Session: Advancers led 1.11 to 1
New Highs: 26 (+11)
New Lows: 118 (-148)
The Chart: http://investmenthouse.com/cd/^gspc.html
Huge rally that also caught fire after the Bernanke kinder and gentler words. SP500 rallied up to the late May lows (1256) as well as the 18 day EMA (1259). The 200 day SMA (1261) is there as well. Very similar to NASDAQ with the layers of resistance and an important point for the index on this rebound. Last rebound it made it to the 50 day EMA (now at 1276). That would definitely be a better sign for the upside if it can make that move again and clear these layers of near resistance.
The small caps (+3.12%) shot back up to the 200 day SMA (365.82), still roughly coincident with the May intraday low. The 200 day SMA is important for SP600, but the price resistance at 370, bolstered by the 18 day EMA (also at 370) is a key point on this rebound attempt.
DJ30
Another big move for DJ30 as BA and friends leapt back into the game. DJ30 managed to cross over the psychological 11K level and tried to take out the 18 day EMA (11,023) but then faded slightly to close just below that level. Volume was still above average and higher. Strong move. On the last rebound from the selling DJ30 rallied to the 50 day EMA (now at 11,139), but all of the moving averages were bunched together at that point. Key level for the Dow here at 11K on up to 11,043 - 11, 078.
Stats: +198.27 points (+1.83%) to close at 11015.19
Volume: 358M shares Thursday versus 355M shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Expiration is here, and after all of the up and down fireworks this week you have to wonder if it is going to be anticlimactic as it often is when the big moves are made beforehand. We get some news on the current account and June preliminary Michigan sentiment, and those may play a small role in the action though the market is really being technically driven at this point.
The market started to rally back Wednesday, and thus a follow through session won't be due until Monday. The follow through is what shows us the buyers are staying with the rally and it was not just a short covering, short term wonder. Thursday was powerful, but it is that very power occurring so quickly after the selling that suggests the move is likely to burn itself out before it even gets the chance to try a follow through.
Further, we have to see more leadership develop as discussed above. The market needs more than just rebounds from the depths. Just about everything was up Thursday, the good and the bad patterns. We found it quite interesting that the stocks in the best patterns were not the best movers, not the best leaders of the session. Maybe nitpicking, but that is how critical leadership is for a rebound that wants to turn into a sustained move.
Many stocks (most, actually) rebounded Thursday, and we are still going to look for stocks that have rebounded in downtrends and are at or approaching the resistance in their trends. Once more we see some energy stocks that are doing this as well as energy stocks that are trying to set up something upside similar to what they did in late May. That move did not work out, but we will be watching to see which way they break.
The power of the Thursday move was impressive but we have to watch with a detached emotion and be ready to move in based on what the market shows. We have our doubts about the ability for this surge to hold up, but we also know that strong stocks in good position should not be ignored, particularly when the market is rallying on volume. Thus we will keep looking for the potential upside winners as well as those stocks that have rebounded from the selling and are testing resistance.
Support and Resistance
NASDAQ: Closed at 2144.15
Resistance:
2150 is the August 2004/April 2005 up trendline.
2162 to 2155 from December 2005 and September 2006
The 18 day EMA at 2159
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 50 day EMA at 2221
The 200 day SMA at 2229.54
2234 is the early June high
2240 is closing low in February range.
Support:
2100 from the early and mid-2005 peaks
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 1256.16
Resistance:
The 18 day EMA at 1259
The 200 day EMA at 1261
1272 to 1268 is the November and December 2005 closing highs and March 2006 closing low
The 50 day EMA at 1277
The late January peak at 1285
The early June high at 1288
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:
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
1241 is an old trendline from the August 2003/August 2004/October 2005 lows.
1225 from the March 2005 high
1213 from December 2004 high to 1215
1205 from the August lows
Dow: Closed at 11, 015.19
Resistance:
11,023 is the 18 day EMA
11,044 is the January high.
11,097 to 11,137 is the last peak from the February top.
The 50 day EMA at 11,140
11,159 is the February high.
The March 2006 highs at 11,329 to 11,335
11,279 is the late May high
11,350 from the May 2001 peak
11,401 from the September 2000 peak and April 2001 highs
Support:
10,965 from Q4 2000
10,931 is the November 2005 high
10,890 is the December 2005 closing high.
The 200 day SMA at 10,883
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% actual, 0.4% expected, 0.6% prior
Core CPI, May (8:30): 0.3% actual versus 0.2% expected, 0.3% prior
Crude oil inventories (10:30): -900K actual versus -100K expected, 1.146M prior
Fed Beige Book (2:00): Strength and expanding strength.
June 15
Initial jobless claims (8:30): 295K actual versus 320K expected, 303K prior
NY Empire State Index (8:30): 29.0 actual versus 11.0 expected, 12.9 prior
Net foreign purchases (9:00): $46.7B actual versus $70.4B prior
Capacity utilization (9:15): 81.7% actual versus 82.0% expected, 82% prior
Industrial production (9:15): -0.1% actual versus 0.2% expected, 0.8% prior
Philly Fed (12:00): 13.1 actual versus 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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