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world stock market, us stock market
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12/17/01 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERT SERVICE
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SUMMARY:
- Indexes bounce where they needed to after a week of selling.
- Holiday rally on light volume looks to be here.
- Light volume is always cause for caution, but holiday rallies are a seasonal gift.
- Full economic news schedule, oh whence is the stimulus package, and where in the world is Osama Ben Laden highlight outside market influences this week.
- Subscriber Questions
- Team Trades
A bounce when needed.
After a week of selling and continued mixed signals from the indexes, all bounced where they needed and the S&P 500 and SOX actually broke back above the 50 day MVA and 200 day MVA, respectively, key points in their continued recoveries off of the September bottom. From a slightly lower open, good things sprang. It was not powerful, but it was a good response to the selling that put the indexes at or slightly below key support levels.
Holiday rally at hand?
As noted over the weekend, there were upside and downside signals, but the overall market attitude remained positive. Moreover, as Christmas comes early next week, a holiday rally may be in order after Santa overlooked investors last holiday. Combine that with the selloff last week, and the market bounced. A soft open turned into solid price gains, some on strong volume, many on so-so volume. The key: with an overall healthy market (despite the warts, it is overall healthy), stocks tend to rally near Christmas. The fact that the indexes sold off for a week after a good rally ahead of the holiday week adds to the upside momentum.
Asinine comparison of the week. Now compare that with the latest general prognostication for this week. Today one analyst said this week would most likely trade lower because it was an options expiration week and five of the last six such weeks have ended lower. Four of those 5 down weeks all occurred during the downtrend before 9-11, the last when the market re-opened. The other one was in October after the Nasdaq made two big rallies and was due for a rest. The most recent was in November, and the November week was up. Maybe this week will end lower, but in our opinion it is not because of any correlation to the last five 6 option expiration weeks.
Light volume is a concern, but not a reason for abstention.
We would have preferred to see stronger volume of course, particularly on the S&P's and SOX' breaks back over key moving averages. That always shows more conviction on the moves and they thus tend to stick better.
Still, there were excellent volume moves on some breakout stocks and stocks that bounced higher as we anticipated in last week's reports. Great moves from stocks on all reports, e.g., SZA, SEBL, NBIX, DF, YUM, ALOY, ORLY, CPRT, EAT, etc. Many of these were on above average volume despite the lower overall market volumes. That indicates buying is still ongoing in many sectors (food was a real winner again today).
While low volume makes us cautious, particularly with breakouts where we really do want to see the big volume regardless of the session volume (and we did see that volume on many breakouts today), we won't be so critical of it that we do not partake in a good bounce play or other solid move. We do not totally suspend the rules when near holidays, but we bend them some.
Economic news, Bin Laden, economic stimulus are still undecided.
Actually, the economic news is getting better and better and there is a more universal acknowledgement of that. As noted last week, the bond market is heavily discounting an economic recovery.
The other two are more problematic. Bin Laden did not turn up in the Afghan alliance's victory in Tora Bora over the weekend. He is rumored to still be in the area. He is rumored to have left the area. The only thing for sure is that he has not been found. There will still be a good move on the news when it comes. As the time drags on, however, it becomes less and less of an issue, captured or not. To be sure there will be disappointment reflected in stocks a bit if the defense department comes out and says he got away, but it will not be a calamity. There is widespread belief, and most likely true, that Al Qaeda has taken a huge hit in this war; many of UBL's most loyal defenders were with him, and for now their ability to coordinate major strikes is limited.
As for the stimulus package, this is the week it will happen or it won't. Reports today were that the sides were back to step 1 with neither willing to give up certain parts of their plan. Just so happens, those are the parts the other side will not (for now) allow into the final plan. Sometimes it is best to go back to the start and re-evaluate what is really important; we hope it works this time. If they do not pull it off this week, Congress will not be back in session until late January.
No question the stimulus package has an impact on the market. As we have been saying, it is one of the factors for earnings growth (the driver of stock prices) that is being discounted into stock prices. Remove the possibility of the package and you hurt stock prices a certain amount (what amount is hard to say). You could argue that last week was part of the factoring in process, and that would probably be right. Still, as the deadline for a chance at a package approaches with no package, stocks can come under pressure, particularly those that have performed well and needed the stimulus to get capital spending up, e.g., technology.
THE MARKET
Nice price gains across the board along with some nice stock breakouts on big volume. Some positive moves were made with the Nasdaq clearing the 1980 gap up point and the S&P and SOX clearing key moving average resistance. It was time for a bounce, and we could get a run through Wednesday or so on this move before some profit taking ahead of the weekend (half day Monday) and Friday's option expiration.
VIX: 25.43; -0.54. Really going nowhere even on a decent advance in the S&P. Given the move higher, no problem with the action, still hanging in the 25 to 26 range, above the low 20's where real complacency sets in.
VXN: 51.07; -1.72. We indicated over the weekend that the 53.72 high on Friday was a level that has set off small rallies on the Nasdaq over the past couple of months. Today that looked to be working, and we will see if volume can kick in. Starting at a pretty low level already, however, and any real rallying up toward the October high could push the level back to the 47 range were rallies have found resistance.
Put/Call Ratio (CBOE): 0.62; -0.10. There was not a lot of negative sentiment in the option market today as put activity fell significantly. Still, it has hit the almost 0.50 of late and then rebounded as soon as the market started to pullback. The ratio has held above 0.50 almost without exception on this rally, and to us after the 4 out of 5 sessions with closes over 1.0, that is a strong indication that 18 months of bear market has the speculators still anxious.
Nasdaq
After holding at support Friday after filling the gap from early December, the Nasdaq continued the move and broke over the gap up point once again. After the pullback the stage was set and it came through.
Stats: +34.28 (+1.8%) to close at 1987.45.
Volume: 1.832 billions shares (-3.5%). Volume fell back to average; not bad volume, but not rising volume on the up session. Volume was down from the sharper selling last Thursday; no real accumulation on the upside action.
Up volume: 1.272 billion.
Down volume: 543 million.
A/D and Hi/Lo: Advancers extended the lead but not powerfully, 1.30 to 1 (1.03 to 1 Friday). Reflects the lack of real power.
New highs: 105 (+27)
New lows: 41 (+3)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Slightly negative open, but that gave way to immediate buying as the index continued the move up off of support at 1934 that started Friday. It went on to break back over the early December gap up point (less than two weeks ago), filling the gap and bouncing. That can give a good foundation for a further move higher, but we would really like to see rising volume on the recovery as that gives the recovery more staying power. Why? Because it shows that buyers are there and mean business. We can still enjoy a nice rally, however, back toward the December high if it can clear 2000. It is important to note that one of its main components, the SOX (semiconductor index), broke above its 200 day MVA once again on the move.
Dow/NYSE
Similar to the Nasdaq, the Dow tested support Friday and rallied, adding onto that gain today. No lower low, a positive development. Also similar, however, volume declined.
Stats: +80.82; +0.8% to close at 9891.97.
NYSE Volume: 1.226 billion shares (-10%). Volume was down again, below average on the buying for the second straight session. It is much lower than the selling volume last Tuesday through Thursday, so there is not a lot of buying conviction. As noted, that makes us cautious of the moves, but playing good breakouts helps mitigate problems.
Up volume: 738 million
Down volume: 489 million. Up and down volume mirrored Friday's action.
A/D and Hi/Lo: Advancers held steady at 1.31 to 1 (Friday was 1.31 to 1 as well). Just not real momentum pickup, but if it rallies through Wednesday or more, we won't complain.
New highs: 97 (+45)
New lows: 57 (+1)
The Chart: http://www.investmenthouse.com/cd/$indu.html
Nice follow through bounce from Friday's successful test of the 50 day MVA (9726.40). On the high (9930.93) it was closing in on resistance at 9992 to 10,000, but left plenty of room for another rally session before hitting that level. Lower volume may act as a hindrance to clearing that level, but as we saw with the SOX and S&P, low volume did not stop them from clearing key resistance levels. That 9992 to 10,000 level is tough resistance, and we will be watching closely tomorrow for problems there. After that the up trendline is ahead just over 10,000, and the 200 day MVA and early December high are a one-two punch (10,113.68 and 10,169.44, respectively). It might not get that far this week without more volume, but good upside momentum on this bounce from the 50 day MVA can carry to 10,000.
S&P 500: After failing an attempt to climb the 50 day MVA (1125.49 today), the big caps cleared that level with room to spare. With the move, it recaptured the 1125 level and the bottom of the former consolidation range. Again, more volume would have been welcome on the move to show staying power (and holding power on another test of 1125). As we noted over the weekend, on any further rally on the upside momentum, we need to watch for resistance at 1150 that might push it back to form the right shoulder of a head and shoulders pattern, a bearish pattern that could send it lower. The down trendline is just below 1150 (1149), and that is a second layer of resistance there. Needs volume or a lot of holiday cheer to clear it, so we will be watching this move very closely. If it fails, we add to our put positions.
Stats: +11.29 points (+1.2%) to close at 1134.36.
Volume: NYSE volume was lower again at 1.226 billion shares (-10%). Today was momentum, not power.
The Chart: http://www.investmenthouse.com/cd/$spx.html
Summary: Momentum moves today as there was no real volume buying behind the push higher. That leaves the indexes susceptible to failure at the next levels of resistance, and the Dow and S&P 500 are susceptible to head and shoulders patterns if they do. They have been lagging the techs, and such patterns could truly send the indexes lower on the test of the move off the September bottom. We will watch carefully, but we won't sit out stellar moves as we saw today.
TOMORROW
Tuesday starts the parade of economic news for the week with housing starts building permits for November out before the open. This is a key sector for the entire economy, and the numbers are expected to be just a hair lower than October. Interest rates were climbing during that period, so it will indeed be interesting to see the results. Overall, mortgage rates remain low, but the refinancing boom anticipated after rates tanked on the announced termination of 30 year bonds may not occur as the bond market marched right back up based on an anticipated economic recovery, 30 year or no 30 year bond.
The momentum is up, but the power is not up (i.e., no heavier volume buying the past two up sessions). The market has had a tendency to rise into the Christmas holiday, and it was doing that today. There is some serious resistance still overhead, however, and nothing throws water on momentum like solid resistance. That is why we could get two days, maybe just a day and one-half, of more upside action before option expiration starts swinging the market up and down (Thursday is usually the most volatile day on option expiration week) when the indexes hit that next resistance and the reality of no stimulus package coming (if indeed it is clear that talks are still stymied at that time).
Overall, the market is still positive with the Nasdaq and the Dow holding support levels and making higher lows. With the longer term perspective good, we still like taking positions as offered, particularly the breakouts and support tests of prior breakouts. If, however, the S&P and then the Dow form head and shoulders patterns later in the week (hitting resistance and starting to sell, forming the top of the right shoulder), we have to be ready to exit short term plays and take the gains just in case.
Support and Resistance
Nasdaq: Closed at 1987.45.
Resistance: Cleared some resistance today in the form of the down trendline (1950) and back over the up trendline (1990 for tomorrow; 1980 today). Some consolidations and psychological resistance at 2000, then the December high is at 2065.69.
Support: It would be nice if the up trendline (1990) would now hold, but the breach just a few sessions back weakens it. We like very much the fact that it was able to jump back over it, however. Then 200 day MVA at 1934.12 that held Friday. 1934 to 1941, the tops of its November consolidation are next. Then the 50 day MVA at 1873.95.
S&P 500: Closed at 1134.46.
Resistance: 1150 (former price consolidations) and the down trendline at 1149. then the December high at 1173.62, the up trendline at 1170, and the 200 day MVA (1171.00) all combine to form some pretty strong resistance. After that there is the middle of the March and April double bottom at 1183.85. Again, a lot of resistance.
Support: 1125, former price consolidations, and the 50 day MVA (1125.49). After that, 1100 is next (top of the October consolidation range).
Dow: Closed at 9891.97.
Resistance: 9992 was resistance on the way up before, and it is there again. Up trendline at 10,025. The 200 day MVA is still there at 10,113.68. The December high is at 10,169.44.
Support: The 50 day MVA is at 9726.40. After that, 9500.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
12-18-01
Housing Starts, November (8:30): 1.525M versus 1.552M prior.
Building Permits, November (8:30): 1.470M versus 1.473M prior.
12-19-01
Trade Balance, October (8:30): -$27.5B versus -$18.7B prior.
Leading Indicators, November (10:00): 0.2% versus 0.3% prior.
12-20-01
Initial Claims, 12/15/01 (8:30): 394K versus 394K prior.
Philadelphia Fed, December (12.00): -17.5 versus -20.2 prior.
Treasury Budget, November (2:00): -$47.5B versus -$23.7B prior.
12-21-01
Personal Spending, November (8:29): -0.5% versus 2.9% prior.
Personal Income, November (8:30): 0.0% versus 0.0% prior.
GDP - Final, Q3 (8:30): -1.1% versus -1.1% prior.
Chain Deflator - Final (8:30): 2.1% versus 2.1% prior.
Mich Sentiment - Rev., December (9:45): 85.7 versus 85.8 prior.
TEAM TRADES
Many choices today as noted in the summary. One that the split team was looking at over the weekend because of its ability to hold up on a flat consolidation with good price/volume action while the rest of the techs were selling was an old favorite, SEBL.
We had a buy point at SEBL when it cleared its recent consolidation at 26.40. Now one of the more aggressive investors on the Split Report was watching for the first aggressive entry point if it showed itself. One of those as we teach in the online seminars is the break back over the morning high after the first pullback. Well, SEBL did that at about 9:40 CT, clearing that early the high of 25.80, and on a good volume burst measured on eSignal. He put in a limit order at 25.85 (the ask), but it ran up a bit; it came right back a couple of minutes later (we were tempted to modify the order), but let it sit. The order was executed at that point.
Now that was the aggressive point and one that you watch the market to take. We also had our breakout point, and that is the one I was looking at (as well as one of the other team members). That buy point was hit at 10:55 CT. Having watched the morning action and wanting SEBL, I had entered a buy stop order at 26.40 and went about other matters. The other trader saw the break occur, sent the alert on the SSR, and put in an order at the ask (26.52 by the time the alert was sent). The buy stop was hit on the move up; the 26.52 was missed first, but hit on a slight pullback. The stock continued to move higher through the close on solid volume. SEBL looks as if it will at least challenge its 200 day MVA at 31.29.
End Part 1 of 2
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