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us stock market, trade stock
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12/19/01 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERT SERVICE
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- Indexes mixed on rising volume.
- Nasdaq holds up fairly well given the SOX drag.
- On again, off again stimulus package does not help the market out.
- Thursday before triple witching: usually the wildest ride of the week.
- Subscriber Questions
Dow assumes some leadership for the second time in the week.
It was not a big gain, but the Dow had a pretty big headwind with Alcoa's after hours announcement on Tuesday. Even with that, it found leadership in an old name, IBM, and rallied from negative territory to notch a gain. The S&P was right on its heels as it too turned it around and rallied. Both made the gains on slightly stronger volume, an indication that there was actual accumulation ongoing in some of the biggest names. After lagging for most of the rally, almost unwilling participants, the big names came through to help prevent a major selloff.
That has been the key to the rally thus far: the ability to shake off news that would have sent it careening lower only a few months back. It is a very encouraging sign to see the Dow and S&P overcome bad news as well and step up to the plate to lead when the Nasdaq stumbles.
Even with the moves, the indexes are still at critical junctures. The Dow is at the 200 day MVA once again; surprise, it is right there again for attempt number 2. If it fails, there is that threat of the head and shoulders pattern. The S&P is right at 1150, and that level represents resistance from former price consolidations. It is closer to a head and shoulders pattern if the move stalls out here or at the November high (1163.38 intraday), we have to be careful of that.
Careful, but not stymied into inaction. Overall the bias is still very solid. Moreover, the moves up today were on the best volume since the big gains early in December. Even factoring out Alcoa's additional 9 million shares traded over its average daily volume the overall volume was up on the gain. That is a positive for the indexes breaking past this resistance. If the Dow can cross the 200 day MVA on some more strong volume, that will be beautiful.
Nasdaq takes an unfamiliar position behind the other two.
The Nasdaq had problems brought about by the semiconductor sector, namely MU and TQNT announcing disappointing results and prognostications. It recovered from heavy losses at the open to turn positive right before lunch, but that was all it could muster as it sold the rest of the session. It managed to hold above the gap up point from early December on the close, but the selling was on slightly higher volume.
Thus, as there was some accumulation on the Dow and S&P, there was distribution, or some share dumping on the Nasdaq. The semiconductors were the target, and one could argue not to worry for the overall Nasdaq because of it. Indeed, stocks such as BRCD and EMLX scored positive on the session, with EMLX jumping up on strong volume. The semiconductor index, however, is more or less the guts of the overall Nasdaq, so if it gets indigestion, the index usually does so as well. If the dumping of semiconductors continues, that portends selling for the Nasdaq.
It is good that it did not tank when it had the opportunity to do so. Again, it held at the gap up point, well off the session low. In addition, there was not terrific semiconductor selling across the board. Leader NVDA just took a day off; INTC just continued to work on its handle on low volume; BRKS enjoyed an upside day on very solid volume. It was not a rout by any means.
Stimulus yes, stimulus no.
Today highlighted how far out this has become. The President went to the Hill and after a meeting with the leaders there announced an agreement had been met. One of our sources got on the phone and told us the agreement was in hand and we had an alert out before it hit the wires. The market ran up on the news. Fifteen minutes later Senator Daschle dashed the good moves with a statement that he still needed 60 votes to get it to the floor, and it was not there. The market then sold back.
The hang up is the same: the republicans want to give money to those laid off for healthcare by a tax credit; that is, money subtracted from your total tax bill. The democrats want the federal government to monitor the healthcare through the former employer, keeping control of the money in the government. A difference of philosophies as we noted last night.
What we really need to ask is this: we know there are more than 50 votes out there to pass the package that was 'agreed' upon this morning. That is all it takes in our system; a simple majority. However, before those 53 or so can vote 'aye,' it has to get to the floor through agreement of 60 senators. 51 to pass, 60 to even hear it. Is this what was intended by the framers? The checks and balances were between the three branches of government, not within the Senate itself. There are a ton of ulterior motives at work, and now it is pretty obvious it is purely political and personal between our leaders.
Some say a package is not necessary. Yes, the leading economic indicators were up 0.5%, better than the 0.2% originally expected. That means 6 months out there is a better chance of an improved economy. Chew on this, however: yes there is recovery ongoing; we spotted it even before 9-11. Problem is, most economists out there say it will be a lukewarm recovery. So, while it may be true that recovery is on the way, should we say 'great, everything is just fine' when it will be so-so? What about those who lost jobs (over a million this year)? Should we not try to get them jobs back right away? A so-so recovery won't do that. This stimulus is not going to overheat the economy. Demand never really tanked from consumers; it will get the supply up, however, with some of the accelerated depreciation everyone agrees to, and that will get people back to work making things. And with more supply, any increased demand will be met. The real fear is increased demand without increased supply; that is inflationary.
So, why settle for a mediocre recovery? Let's do what we need to do while we have the opportunity to do it, and get those folks back to work. Regardless of whether it is the democratic version or the republican version, the health benefit portion is a small part of the package. We need to get on the phone and tell our senators to go see Mr. Daschle and tell him that their constituents want a bill passed now. Get it to the floor and let them vote on it. It will pass.
THE MARKET
Dow and S&P leadership for a change. Not much of a gain, but rising volume on buying on those two indexes was a welcome sight. Now they need to clear some major resistance, and the Nasdaq needs to get back on track. There have been more positive comments than negative over the past three weeks, but the concern is that warning season is now here, and more warnings will come. Sure they will; they always do. We suspect, however, that they will be fewer. Also, we note regarding MU that DRAM prices have just spiked in the past couple of weeks. We do not necessarily agree with Dan Niles that MU is just an indication of more weakness to come in 2002.
VIX: 23.57; -0.59. Down again on another gain in the S&P. It is rapidly approaching the summertime doldrums of 20-22. That level indicates complacency, and complacency means we can find some topping action. The volume, however, was very positive today, and price/volume overrides this indicator.
VXN: 49.68; +0.63. A modest gain as the Nasdaq sold off. 51.19 on the high, better but not great. Still well above that 47 level that tends to market the end of recent rallies.
Put/Call Ratio (CBOE): 0.63; +0.01. Steady again for the third straight session as the indexes traded mixed. It is still not in a bad place to hold steady, however, well above the 0.40 level that is considered bearish.
Nasdaq
As quick as it was over 2000, it was back below it today on the semiconductor selling. There were standouts as noted above, and it did hold on, come back and then closed well off of the low. Not bad action, but there was more volume on this downside action, and that means there was some share dumping ongoing. Still, the action was not bad given the news.
Stats: -21.87 points (-1.1%) to close at 1982.89.
Volume: 1.920 billion shares (+3.9%). A gain in volume on selling is distribution, meaning more sellers in the market than buyers previously. Note, however, that volume did not exceed last week's selling volumes, nor did it come close to the early December buying volume. It was not indicative of heavy dumping.
Up volume: 582 million
Down volume: 1.326 billion. Doubled from Tuesday's action.
A/D and Hi/Lo: Decliners moved into the lead at 1.28 to 1, but it was not commanding (advancers led 1.33 to 1 Tuesday).
New highs: 112 (-12)
New lows: 45 (-1). Good to see new lows actually falling on selling.
The Chart: http://www.investmenthouse.com/cd/$compq.html
The run over 2000 ended on today's open. A quick run to 1971 on the low and then a rebound. Positive territory for a point or so, then sold back down. Held over the early December gap up point and was able to recover after some pretty nasty news. It is just below the up trendline once again (now at 2005), and if this is as far as it falls, it has made another higher low. It has good support at the 200 day MVA (1932.38) that is now coincident with price support at 1934. 2000 has been pesky. It needs to clear that with strong volume. Today's action in not tanking on the news and the selling in the SOX was a positive; it has to take out that 2000 level, however, and it needs the semiconductors to do that. Overall the index remains in decent shape.
Dow/NYSE
The Dow was the leader again today, the second time in three sessions. It would not let AA take it down, led by IBM, MMM, and others. INTC looks ready to breakout of its cup with handle. There are some positives here with the gain on stronger volume. Now it has to get over the 200 day MVA that bounced it down last time.
Stats: +72.10 points (+0.7%) to close at 10,070.49.
NYSE Volume: 1.443 billion shares (+8.3%). The best volume since early December's gains; a very good sign as the buyers were back on the NYSE. Two positive price/volume days back-to-back. Very refreshing.
Up volume: 837 million
Down volume: 612 million
A/D and Hi/Lo: Decliners led on the session 1.07 to 1 (advancers led Tuesday 1.71 to 1). This was somewhat disappointing, but consider that there was a lot of selling early in the session with the AA news. Still, not great action on an up day.
New highs: 88 (-30)
New lows: 50 (-4)
The Chart: http://www.investmenthouse.com/cd/$indu.html
Now it gets interesting. After jumping up off of the 50 day MVA (9750.15 now) four sessions ago, the Dow now finds itself at the 200 day MVA (10,109.30) once again. This is the level that bounced it down in early December, and it is a critical level it has to break over. Now it also closed right at the up trendline (it will be at the 200 day MVA tomorrow), and that makes for a bit more resistance, but the 200 day MVA is the challenge regardless. The solid volume today was a great plus. Question is, can the index break the resistance after four days of rallying? If it does break it tomorrow, we have to watch for it to hold; it reversed intraday after breaking over the MVA in early December, and that sent it back down. That is the key tomorrow; the good volume is a good sign, but we had good volume heading into this level in early December, and that did not work. All eyes on the Dow tomorrow, and we will be watching it all day.
S&P 500: The big caps backed the Dow up today with a continued move over the 50 day MVA (1127.09), clearing the March 2000 down trendline on that solid NYSE volume. It is right at resistance from prior price levels at 1150. If it can clear that, it has some room to run to the 200 day MVA (1170.06). Not a lot, and it will have to clear that resistance just as the Dow in order for it to really improve. The December high is right there as well at 1173.62, blocking the plate. The stronger volume is great; we have to watch very, very closely, however, as the index could stall here and show a head and shoulders pattern, nor it could run to the 200 day MVA again, stall, and form a double top. That would be bad. Good volume cures most ills, however; we want to see more tomorrow. Given that this is the Thursday before triple witching, we will see some good volume.
Stats: +6.64 points (+0.6%) to close at 1149.56
Volume: NYSE volume rallied again to the highest level since the big gains on the upside moves in early December (1.443 billion shares; +8.3%). It has to continue on the upside.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
The Thursday before triple witch is often the most volatile of the week, and it often sports the strongest volume. We are bracing to see if the volume pushes the Dow and S&P over resistance and actually turns to the upside for the Nasdaq. After a strong rally and then selling that gave it all back, the indexes are back at key resistance. Will the second time be the charm?
This time of year suspends some of the rules; we can see great moves on no volume. Trade was not expected to be very active today, but it was indeed quite active trade. Sure there was news moving the market, but there was no lack of investors willing to trade today. Tomorrow the Philly Fed comes out at 12:00 ET, and that usually has an impact on the market to some extent.
Tomorrow the Dow is going to be on our main radar with the Nasdaq second. Will the techs be able to shake off the semiconductor selling today and follow the lead of EMLX and BRCD. Again, the market is shaking off the bad news still. The Dow and S&P got over AA, MOT, and MU, and the Nasdaq did not roll over and die. Volume was good on one, bad on the other. We still see breakouts moving up well on strong volume and holding the moves. That is one of the keys to a sustained move. As with CMH today, we had a good move that was on strong volume; when you see a good move from a solid pattern, get in and get the gain.
Support and Resistance
Nasdaq: Closed at 1982.89.
Resistance: 2000. The up trendline is at 2005. The December high is at 2065.69.
Support: The 200 day MVA 1932.38; that is right at support at 1934 to 1941.
S&P 500: Closed at 1149.56.
Resistance: 1150 (former price consolidations). Then the December high at 1173.62, the 200 day MVA is at 1170.06, and the up trendline is at 1173. 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 (1127.09). After that, 1100 is next (top of the October consolidation range).
Dow: Closed at 10,070.49.
Resistance: Up trendline at 10,090. The 200 day MVA is still there at 10,109.30. The December high is at 10,169.44.
Support: 9992. The 50 day MVA is at 9750.15. 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): -29.4B actual versus -$27.5B expected and -$19.0 prior (revised from -$18.7B).
Leading Indicators, November (10:00): +0.5% actual versus 0.2% expected and 0.1% prior (revised from 0.3%).
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: Under what conditions do you trade in the first hour? How long do you give the market before you jump in if you trade in the first hour? ...if market is opening up?...if opening down?... Do you respond differently depending on the direction of the market?
A: One of the age old dilemmas. You see the market open and stocks are running early. Do you get in right away and risk a stock tanking on you or do you wait and potentially miss a good move? Basically, if an index jumps over resistance, tests it and then moves back up, we will start taking some positions. Same to the downside if we are looking for an overall down move. For individual stocks we look at the same type of situation: does it breakout of a pattern that we are looking at? If so, we will take some positions at that point, but not a full position. We then let the day develop more to see how it acts and whether we want to add to the position that session (e.g., volume is what we want and the move is still holding).
On those moves up early, we are always concerned about the higher open and the pullback. That is why we usually wait for that test of the early move before we get in. On softer opens we will also go ahead and make investments on stocks making good moves if the markets catch themselves, preferably at support, and then turn right back up.
One problem is gaps on good news. We want to make a short or long term play on the stock. It announces some good news or is upgraded and moves higher. Do we chase it? Sometimes depending upon the news. When a solid company comes out and raises its own earnings forecasts above expectations, we often buy right then with stock and options. Our goal is to take a quick gain on the options maybe that day. With the stock it could be the same, or we could hold on depending upon how the stock performs during the session. Playing a gap on good news may be a play where a stock breaks out of a pattern, or it may just be making a play on the news. If it is a catalyst to the breakout, we can let the positions continue to work for us as breakouts can run a quick 20%. If the news is not going to break it out of a pattern, we are more playing the news and looking for the quicker gain.
So, while we don't like to initiate trades in that first hour (half hour for sure), we will do it at times based on either the market action, individual news on a stock, or individual moves on a stock (breakout and test), or all three. It is hardly ever a full positions, however, unless we are making that quick play on news where we want to bank the gain that session.
End Part 1 of 2
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