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understanding the stock market, stock watch
Begin Part 2 of 2
THE MARKET
The rally continued, but the indexes are still at an important resistance point. News is not good tonight, and that will put a lid on action early. Today we saw the indexes start higher, test the move higher, move up, and ultimately form a double bottom that broke out late in the session. We were on top of this all day with the alerts and let everyone know when the breakout occurred. We entered some nice positions on the moves.
VIX: 24.16; -1.27. Quiet pre-holiday action has volatility lower, particularly when you can gap higher and hold onto the move for the session. Volatility cracked below 25; still above the 20 to 22 level that signals complacency, but this is not good territory long term. Prior to the holidays, we won't complain.
VXN: 49.05; -2.02. Nasdaq volatility continues to plummet after bumping up to almost 54 last week, a level that has led to some minor rallies, just as the one we are seeing now. It still is signaling that the index has some room to move up as these rallies have found resistance when the VXN hits 47.
Put/Call Ratio (CBOE): 0.62; 0.00. Held steady on the session. Given the gains, that is not bad action at all. We like it when the ratio holds higher as the market rallies. The indication of pessimism means that there are still investors that have yet to enter the rally, and that represents future fuel for the rally.
Nasdaq
Broke over the 2000 level early, sold below it, and then made a later breakout. Volume rallied a bit, a good sign. Sluggish day, however, and MU's announcement will cool things at least for the morning.
Stats: +17.31 points (+0.9%) to close at 2004.76.
Volume: 1.850 billion shares (+0.6%). Not a big jump in volume and still lower than the prior week's selling volume. Holiday volume already.
Up volume: 1.197 billion.
Down volume: 631 million.
A/D and Hi/Lo: Advancers held the lead at 1.33 to 1 (1.30 to 1 Monday). Again, no real power on the session.
New highs: 124 (+19)
New lows: 46 (+5)
The Chart: http://www.investmenthouse.com/cd/$compq.html
A gap higher that ran through 2000, tested it, looked as if it would hold, but then fell to 1989.81 on the low. It failed at 2000, retested 1990, and then rallied to the close. Double bottom intraday. The index managed to break and hold above 2000, a level that is now important. It still has the December high ahead of it (2065.69), but that is about all. More important is the downside that could be tested tomorrow: 2000 (the up trendline is there now), then the gap point at 1980. The SOX was lagging today, and with MU, it will pressure the Nasdaq tomorrow early.
Dow/NYSE
The Dow rallied as well, rising again to test 10,000 on above average volume. Not bad at all, but AA will hurt it tomorrow early.
Stats: +106.42 points (+1.1%) to close at 9998.39.
NYSE Volume: 1.332 billion shares (+4.9%). Good to see volume crack back over average on some buying. Still below last week's selling volume, but a nice rise on a pre-holiday weekend is good action.
Up volume: 830 million
Down volume: 482 million. Held steady from Monday.
A/D and Hi/Lo: Advancers climbed to 1.71 to 1 (1.31 to 1 Monday). Not bad action.
New highs: 118 (+21)
New lows: 54 (-3)
The Chart: http://www.investmenthouse.com/cd/$indu.html
Another rallying session after testing the 50 day MVA Friday. Picked up some momentum today on the move with rising, above average volume. Cleared some resistance at 9992, taking aim on the up trendline and the 200 day MVA (10,111.19; trendline at 10,100). Lots of resistance at that point, including the December high at 10,169.44. That gives the index another 100+ points to rally before some volatility may set in for Thursday's action. Looks as if it might make that level after all but for the problems with AA. That will drag the index early.
S&P 500: The big caps brought up the rear, but still managed a solid gain on that rising, above average volume. It did not even test the resistance at 1150 and the down trendline just below that level (1148). We like the higher volume on today's move, but again we have to be careful of any rollover at the 1160 range if volume should fail on any move higher tomorrow. A head and shoulders pattern is still a very real possibility here as the big caps have not been very strong of late. With AA, MU, and MOT, it may have problems in the morning before it tries to catch its feet.
Stats: +8.56 points (+0.8%) to close at 1142.92.
Volume: NYSE volume rallied on the move, moving up to 1.332 billion shares (+4.9%). Good to see volume rising on a move up.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
After hours news will most likely dominate the pre-market and early trading with MU, AA, and MOT being the catalysts. Unfortunately for the rally, they will be downside catalysts. This market has continually overcome bad news on this rally, and it will have the opportunity to do that again tomorrow. We will watch for what levels hold early; if it is a good support level, that will invite a few positions. Not a boatload of positions, but just building a position on good stocks that are making good moves.
If support levels do not hold, we will hold off and let buyers decide if they are going to come back into the picture. Overall, the bias is still to the upside in the absence of an upset to the system. What would that be? Others piling on with bad earnings or outlooks, proclaiming the stimulus package dead, a series of downgrades. Of those, the second is most likely (our sources in D.C. are amazed at the holdup), then the first. Either of those will hurt the session for the day. Still, at this point we are not ready to step back in and short until we see a bearish pattern develop such as a head and shoulders on the S&P for example. The market has been resilient each time it looks ready to sell down. There are some ripe downside plays for a quick hit tomorrow if the gap down is not too big (e.g., QLGC to 45), and the DJX could also form a head and shoulders pattern from here. Those will present the best downside opportunities, but we have to be patient and let them develop.
Support and Resistance
Nasdaq: Closed at 2004.76.
Resistance: Moved over that 2000 level, but has not broken free. The December high is at 2065.69.
Support: 2000 would be great as the up trendline is right there as well tomorrow. Below that is the 200 day MVA 1933.39; that is right at support at 1934 to 1941.
S&P 500: Closed at 1142.92.
Resistance: 1150 (former price consolidations) and the down trendline at 1148. Then the December high at 1173.62, the 200 day MVA is at 1170.52, and the up trendline is at 1171. After that there is the middle of the March and April double bottom at 1183.85.
Support: 1125, former price consolidations, and the 50 day MVA (1126.17). After that, 1100 is next (top of the October consolidation range).
Dow: Closed at 9998.39.
Resistance: 9992 was taken out today. Up trendline at 10,070. The 200 day MVA is still there at 10,111.19. The December high is at 10,169.44.
Support: The 50 day MVA is at 9737.07. 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): +8.2%. 1.645M actual versus 1.525M expected and 1.521M prior (revised from 1.552M).
Building Permits, November (8:30): +5.3%. 1.564M actual versus 1.470M expected and 1.485M prior (revised from 1.473M).
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.
SUBSCRIBER QUESTIONS
Q: Can you please explain what takes place in the last 45 minutes that unleashes all the buying activity so often?
A: Most of the action takes place in the first and last hours. Why? Usually the early hour is dominated by retail investors that put in orders the night before, and to a much greater extent institutions with buy orders that are either buying equities or selling them based on fair value in the futures. The last hour is often called the 'smart money hour.' The reason is that many are more interested to see how a stock has performed all session (pattern and volume) so that there is a better understanding of what a 'fair' price is for the stock and what the stock may do the next session. When they buy in big quantities on the NYSE, they often use buy on close orders, buying the stock at whatever the price is at the close. If they like what they see during the day, they submit these orders 20 minutes before the close and make the buy then. Your broker can scan those for you. I have often said I want to know where a stock is closing more than where it is opening. There is history there for the session, and it helps to make educated entry points. That is why when we see an early breakout sure we will take some positions, but we will also look later in the session to see how the volume is fairing and how the price action has held up. As an investor, it is good to know what the institutions are doing, and it is easier to see that on an intraday bases in the last hour.
TEAM TRADES
PSFT was moving in a double bottom with handle. The first hour saw it take off, moving on very strong volume but stalling at its handle high of 42. It looked good as it pulled back and traded through the middle of the day on very low volume, trying 42 again on a bit higher volume at 11:30 CT and then making a higher low on another low-volume dip. When the Nasdaq started up from its lows at 1:45 CT, I watched as it tried 42 again. This time it snuck through, and volume spiked up. Watching the market carefully as it tried 2000, and it broke 2000 just as PSFT hit the buy point of 42.12. Volume spiked up to breakout levels, the heaviest since the morning hours, and I put in the order at the ask of 42.15. It moved up momentarily but came back and took me out.
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
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800-322-0940
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Good Investing!
Jon L. Johnson and the Technical Traders Team
All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Online Investment Services, LP or its paid consultants and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. We are not licensed or registered in the securities industry. The information presented herein and on our related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolio of Partners of Online Investment Services, LP or its paid consultants may, in some instances, include securities mentioned herein and on our web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors.
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understanding the stock market
stock watch
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