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us stock market, trade stock
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10/09/06 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Target hit alerts: CRM; NVDA
Buy alerts: HITT; TRAD; UTSI; NVLS (bonus)
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:
- Stocks shrug off North Korea nuclear test, rising oil to post modest gains.
- Slow economic day highlighted by some softer but same old Fed-speak
- SOX trying to get things moving, but not getting much help Monday.
More bullish intraday action, but no real strength.
Over the weekend North Korea apparently tested a nucular (Bush-speak) weapon. Combined with its missile tests the past several months this was clearly another step in its campaign to try and wrest concessions from the west and anyone else it can to get enough food and assistance to keep its impoverished populace from going into revolt and throwing the communists out of power. It has already sold nuclear technology to Iran (along with Russia), not to mention a lot of Chinese missiles that turned up in the Middle East conflicts.
Oil moved up on the news, surging more than 2% intraday. Despite this one-two punch, the market didn't really take it too hard. Sure Asian markets were lower and oil jumped, but the financial markets in Europe and the US held their ground without much of a hiccup. Oil reversed intraday and closed just modestly higher (59.96, +0.20). Perhaps it was the uniform opposition to North Korea's actions (China and Russia both came out strongly condemning the test) that helped calm the markets. In any event, once more the market faced some negative issues, started slower, but then rebounded to close positive once more.
Chips led the market, something it needed after strong runs by DJ30 and SP500 has left those indices nicely higher but also extended. NASDAQ started higher last week on a strong volume breakout, and it needed SOX to give it some support and a place for money to rotate to while the NYSE large cap indices come back in a test. They definitely helped things along, providing some early strength and turning the large caps back up as stocks overall melted higher into the close. It was no banner breakout session, but the market did once more overcome some adversity and manage a higher close.
Technically not a whole lot changed. DJ30 and SP500 continued modestly higher, still showing signs of wear and tear in need of some R&R. Even with the chips leading the way, volume was significantly lower on the Columbus Day holiday (bond market was closed) and thus the move was more of a melt up than a rally. Leadership was, as noted, in the chips and some techs. While overall the market got little volume, the chips moved on some solid trade. Thus there was some rotation into those stocks. That was promising though not a whole lot more at this juncture.
Basically DJ30 and SP500 remain overbought near term in their fourth bounce up the 18 day EMA after the mid-August breakouts. That suggests a deeper test coming here in October. At the same time, NASDAQ and SOX are trying to get some money rotating their way with NASDAQ making a breakout last Wednesday and SOX trying to put together a rally off of its consolidation along the 50 day EMA. Tuesday was a start, but need to see more rotation into this area if it is going to take over along with NASDAQ while the large cap NYSE stocks take a breather after a good run.
THE ECONOMY
Yellen a bit calmer on a quiet economic session.
There were no scheduled economic reports of note and there were not many earnings warnings to drive the action. With North Korea testing nukes and oil trying to rally, most everything else was second tier on Monday.
Thus when San Francisco Fed president Yellen talked Monday, it did not have a lot of impact. Now if she had breathed fire and brimstone it would have garnered more attention, but here slightly less hawkish attitude apparently blunted the newsworthiness of her comments.
Yellen was one of the first to talk about the Fed's concern of going too far with rate hikes and stalling an otherwise healthy economy. Thus she is viewed as more dovish than hawkish. Nonetheless her last statements were perceived as more hawkish. Monday she appeared to split the baby. Basically she said that the current interest rate levels were sufficient ("moderately restrictive" is how she styled them) to quell the inflation risks currently in the system. She couched that with more talk about upside inflation risks as the most important, and that she would focus on that as the issue until she sees inflation actually go down. She said holding the policy "steady for a time makes sense to me."
In short, Yellen is saying that there are not hikes coming, but they are nowhere near talking about rate cuts. Yes she said she was surprised at the pace of the housing slowdown, but as long as the Fed's inflation measures are holding steady at current levels or moving up, the Fed is not going to think about cutting rates.
Whether that is the right play or not remains to be seen. Interest rates rebounded late last week after the jobs report and following another rally that pushed rates sharply lower. If rates edge higher and the inversion (6 basis points as of the Friday close at 4.76% versus 4.70%) flips, then the market thinks the Fed has it right. As noted over the weekend, the inversion has refused to dissipate, and thus the bond market is still showing, at least in significant part, that there is still real concern about the economic future. We will have to see how the bond market reacts as it opens this week after a Monday day off.
THE MARKET
MARKET SENTIMENT
VIX: 11.68; +0.12
VXN: 18.28; +0.31
VXO: 10.81; -0.36
Put/Call Ratio (CBOE): 0.98; +0.03
Bulls versus Bears:
Bulls: 49.5%. Big jump from 47.4% where it paused for 2 weeks. Up from 42.1% and drawing closer to the 55% level considered bearish. Still below the peaks from January and April, and well below the 55% level considered bearish, but it is heading that way and getting too high.
Bears: 33.3%. Down from 33.7% where they held for 2 weeks as well. Down from 35.4% before that, but still well above the 20% level considered bearish. The 37.1% hit in July was the highest level in this entire cycle, easily clearing the 34.4% hit in late June back when bulls and bears kissed, just missing a crossover. Hit a new post-2002 high in that late June move, eclipsing 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: +11.78 points (+0.51%) to close at 2311.77
Volume: 1.518B (-10.5%). Very low holiday light volume as NASDAQ pushed modestly higher. Nothing but lower trade after that surge higher last Wednesday, but that move was on strong trade, showing buyers when the techs made their breakout.
Up Volume: 932.903M (+306.677M)
Down Volume: 550.207M (-499.043M)
A/D and Hi/Lo: Advancers led 1.49 to 1. Middle of the road breadth on the continued advance. Was very strong Wednesday and Thursday when NASDAQ made its initial breakout.
Previous Session: Decliners led 1.33 to 1
New Highs: 133 (+72)
New Lows: 26 (+4)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ started lower but added to its breakout with its fourth gain out of five sessions. Strong volume on the Wednesday breakout and then declining trade since, particularly Friday and Monday. Like that breakout after NASDAQ bounced off the 200 day SMA (2223) Tuesday. The low volume advance after that move is purely momentum. That momentum carried NASDAQ up into the top half of its early 2006 range, the late January peak as well as the early March peaks. That is interim resistance in the range; the next is 2333, hit in early January and intraday in mid-March. NASDAQ will need more buying to get through this level and may test back a bit to consolidate last Wednesdays move, but it is starting to show more action with that breakout and with some help from SOX.
SOX (+1.12%) led the market Monday and was really looking solid with a midday high at 460.59. That could not hold to the close as it gave back 4 points of its 9 point intraday gain. Many chips performed well, moving on solid trade. SOX remains well positioned to break higher off the 50 day EMA (447), and it was trying to do it Monday. Still solid, still positioned well, still has to show us the move.
SP500/NYSE
Stats: +1.08 points (+0.08%) to close at 1350.66
NYSE Volume: 1.264B (-19.61%). Big volume drop as SP500 continued another do nothing session as it pauses after the continued run last week.
Up Volume: 731.505M (+196.938M)
Down Volume: 493.627M (-526.616M)
A/D and Hi/Lo: Advancers led 1.59 to 1. As with NASDAQ, rather middle of the road.
Previous Session: Decliners led 1.78 to 1
New Highs: 208 (+135)
New Lows: 2 (-1)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 continues to work laterally after a strong run with lowering volume. This is its fourth bounce up the 18 day EMA (1333) after breaking out in mid-August. A stock or index will make 4 to 5 such moves before testing lower and regrouping for another break higher. It can still squeeze out another run here after another consolidation either in pace or back down at the 10 or 18 day EMA (1341 and 1333). As noted over the weekend, still no sign of rolling over given the good price/volume action. That means it can test back here again and still rebound one more time on this run. We will just have to see how the move plays out and how NASDAQ and SOX respond, i.e. whether they get some of the rotation money. That would indicate SP500 is indeed not rolling over, just taking a much needed rest.
SP600 (+0.65%) posted another good move, clearing the July high (379) though by a hair. No real volume on the move given the low NYSE trade levels. Like the action but not a clear breakaway from the July high. A move over 383-384 is a very important breakout move for the small caps as they continue to rebound and build their base.
DJ30
As with SP500, the Dow is working laterally, posting a modest gain and refusing to give up its rally from last week. Volume fell below average for the first time in a week, not surprising given the holiday. As with SP500 this is also DJ30's fourth bounce off the near term moving averages following the mid-August breakout. Extended, but still showing a lot of momentum and capable of another bounce from this level after a test of the 10 or 18 day EMA (11, 761 and 11,682).
Stats: +7.6 points (+0.06%) to close at 11857.81
Volume: 178M shares Monday versus 243M shares Friday. Low, below average volume for the first time in a week as DJ30 just sat on its gains. Not bad action, holding its break higher as it walks laterally on lower volume.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Wholesale inventories are all that is on tap for Tuesday. The action will be in what oil does with OPEC and potential production cuts and North Korean nuclear fallout. Oil turned sharply intraday after a 2+% move when OPEC let out word that no emergency meeting was called. Earnings warnings are also up front and earnings are starting to come in as well. That will be the primary driver ahead as DJ30 and SP500 try to consolidate their breakout run gains and either make another move up the 18 day EMA or make a deeper test. At the same time NASDAQ made a breakout move last week, trying to get its act together for a run to the May high. SOX is trying to move as well, once more starting on a break Monday but not yet making the breakaway move.
Now several semiconductors posted some good moves Monday, not only in price but on solid volume as well. That indicates some of the buying and money rotation we are looking for. The healthiest action is for the NYSE large caps to test on lower volume while the techs and chips step up on rising volume. That shows money moving around the market to greener pastures (and tech and chips would be that given their relative moves to SP500 and DJ30), and that is what you want to see in a market that has run higher and needs a rest. It is trying to do that but hasn't quite done it yet.
Given the attempts by NASDAQ and SOX to join in on the move, we are going to continue looking for prospects in those areas. Thus far the sellers have not shown their faces even on sessions when they are in 'control.' Right now downside volume continues weaker on the downside sessions, stronger on most of the upside sessions, and that is good for the upside. DJ30 and SP500 could start selling a bit more here after making this fourth bounce off the short term moving averages, coming back once more to test or to head lower; they are at the point where you have to start watching for that deeper test given the four bounces higher after the August breakouts.
While they make that test we will look for the sectors poised to move higher just as we have been doing. That is not just technology, however; for example, shipping/transportation is recovering nicely. We will also be watching the bond market as it resumes trading Tuesday, looking for that inversion to straighten out. The Fed is not giving it much room to move, however, as it is still talking tough on the rate front.
Support and Resistance
NASDAQ: Closed at 2311.77
Resistance:
2316 from interim tops in January and March 2006 trading range
2333 is the top of the Q1 2006 trading range (the January and mid-March 2006 highs)
2376 is the April high, the post-2002 high
Support:
2277 is the 10 day EMA.
2273 is the recent September peak
2256 is the 18 day EMA
2250 is the March 2006 closing low.
2234 is the June 2006 peak (intraday)
The 200 day SMA at 2223
2220 is the August 2004/April 2005 up trendline
The 50 day EMA at 2205
2190 is the July 2006 high
2185 to 2182 is the September 2005 peak and interim high from November 2005.
2177 is the December 2004 high.
2168 is the August intraday high.
2158 from the May 2005 low.
2100 from the early and mid-2005 peaks
S&P 500: Closed at 1350.66
Resistance:
1358 to 1362 mark a series of peaks from April 1999 to August 1999 high and the February 2002 low at 1360.
1371 to 1373 is the December 2000 peak and the January 2001 peak
Support:
1339 is the late September closing high
1334 is an October 1999 peak
The 18 day EMA at 1333
1326.70 is the May 2006 high
1324 to 1329 from the October 2000 lows.
1311 is the April closing high.
The 50 day EMA at 1311
1302 the recent August highs
1294 is the January 2006 high and 1297.57 is the February 2006 high.
The early June high at 1288
The late January peak at 1285
The 200 day EMA at 1285
1280.37 is the recent July peak.
Dow: Closed at 11,857.81
Resistance:
Has broken free and now we just look at how far above its 50 and 200 day SMA it gets to gauge how overbought it is. It is 6.2% above the 200 day SMA so it has some room before it gets to the 10% level where it typically will start to falter.
Support:
11,750.28 is the prior all-time high
The 10 day EMA at 11,761
11,723 is the January 2000 closing high
The 18 day EMA at 11,682
11,670 is the May intraday high
11,642 is the May 2006 closing high
11,488 is the early September high.
The 50 day EMA at 11,480
11,401 from the September 2000 peak and April 2001 highs
11,384 is the August intraday high.
11,350 from the May 2001 peak
The March 2006 highs at 11,329 to 11,335
11,279 is the late May closing high
11,243 is the early August peak closing high.
11,228 is the July closing high.
The 200 day SMA at 11,164
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
October 10
Wholesale inventories, August (10:00): 0.6% expected, 0.8% prior
October 11
Crude oil inventories (10:30): +3.35M prior
FOMC minutes, September 20 (2:00)
October 12
Initial jobless claims (8:30): 312K expected, 302K prior
Trade balance, August (8:30): -$66.5B expected, -$68.0B prior
Fed Beige Book (2:00)
October 13
Retail sales, September (8:30): 0.2% expected, 0.2% prior
Retail sales ex-autos (8:30): 0.0% expected, 0.2% prior
Michigan sentiment, Oct. Prelim (9:45): 86.0 expected, 85.4 prior
Business inventories, August (10:00): 0.5% expected, 0.6% prior
End part 1 of 3
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