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us stock market, trend trading stock
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10/10/06 Technical Traders Report Update
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Technical Traders Report Subscribers:
Full report issues Wednesday
MARKET ALERTS
Target hit alerts: ISE
Buy alerts: None issued
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 sluggish but again rebound from negative to close positive.
- Transports starting to see better results, but not due to a rebound in pre-holiday business.
- Wholesale inventories jump, but sales jump as well.
- Fed-speak sounds a better tone but is more of the same.
- Earnings get started. Chips and techs trying to rally while large caps rest or will the October correction start as the new quarter money slows
Once more stocks move up from the selling.
Sluggish action once more as SP500 and DJ30 continue to hold at the highs following their breakouts while NASDAQ and the rest of the market attempt to catch up. Instead of any catch up the indices moved modestly higher in lockstep. A modest opening gave way to a sell off and then another rebound took over in the afternoon session, bringing the indices back to positive. Not much of a gain, and that pretty much tells the story of the session: a bit of up and down in a range, not a whole lot of leadership, average volume, and a continuation of the bullish intraday movement. The NYSE indices remain at the top of their channels while technology tries to pick up the pace. It wasn't happening Tuesday ahead of the earnings season.
The session had some positives. After a bump higher on the North Korean nuke test (or whatever it was) oil tanked, falling to 58.52, -1.44. Some friendlier Fed-speak (sort of) tried to help with Poole saying the Fed should follow the bond market; if it were only so. Wholesale inventories were up, but so were sales. Some good news helped early, but then rising bond yields and a widening spread along with some threats from Dallas Fed president Fisher helped push stocks lower intraday. In the end the positives won out, sort of. That intraday bullish action once more pushed stocks higher in the afternoon for another positive close.
Technically it was not much to crow about. The gains (and SOX' loss) were all less than a half percentage point. That means basically no change in any indicator. Volume was up, but after Monday's holiday volume that was not a big feat. Volume was running stronger long before the indices turned back up for a positive close in the afternoon; hard to draw a lot of conclusions from the volume action other than it was still below average. Breadth was weak as well, barely cracking positive. There was some leadership, but it scattered and spotty. Momentum areas such as financials continued higher while energy rebounded further from its August and September drubbing. Outside of that the moves were spotty though some plays posted strong gains.
All in all the large caps remain a bit overbought while techs look for a trigger to move higher. Earnings could provide that trigger both ways. The large caps moved higher ahead of earnings while technology somewhat lagged. Earnings can give reason for taking some gains from the large caps and for buying some of the techs and chips. We will have to see how that shakes out as they crank up. As usual, Alcoa missed by a mile after hours while DNA beat. Much more to come before stocks take their trend from earnings.
THE ECONOMY
Inventories jump more than expected, but so do sales.
August wholesale inventories rose 1.1%, much stronger than the 0.6% expected and topping July's 0.9% gain. That can indicate industry is slowing. Sales rose 1.1% as well, keeping the inventory to sales level at a record low 1.5 months. Year over year inventories are up 9.7% while sales are up 12.5%. Thus while inventories are rising, they are doing so to try to keep pace with strong sales. The continued record low inventory to sales ratio keeps the pressure on for continued future manufacturing, particularly if business spending remains as strong as it has the past year. All of those 'flush' business accounts have to keep the action moving as the housing market and consumer cool.
That is needed news because Q3 is turning out pretty slow. Estimates run from less than 1% GDP growth to 3%. You know what that means: 1.5% to 2% is the likely range. Hardly the kind of growth to write home about, but in any expansion you get slower cycles within the overall expansion. The stock market is indicating the economy will ride through this patch to a stronger growth period once again. Bond yields are higher (4.82% 2 year versus 4.76% 10 year) but so is the spread. Stronger yields indicate more demand for money down the road, but the inversion still says short term money is more valuable than longer term, and that means the strength is now and not later. That is where the concern remains: the tension between the stock market and the bond market.
Trucking starting to see the holiday rise? No.
Two weeks back SWFT lowered third quarter guidance based on energy costs and the lack of usual pre-holiday surge as stores moved to stock the shelves for the traditional holiday buying binge. Late Monday SWFT moved its forecasts back up. Swift move?
Unfortunately, it was not from a surge in shipment orders, at least not according the company's release. The primary reason was lower fuel costs. That is great news and it shows the power of lower energy for businesses as well as individuals, but it is not the best news, i.e. that stores are ramping up ahead of the holiday season. All of the talk about a slow consumer due to slumping housing sales is keeping some retailers holding back. Better shop early to get what you want.
Fed-Speak sounds more reconciliatory this week, but in the end it is the same company line.
Two Fed speakers of note on Tuesday, and their words were more of the same though somewhat encouraging.
Fisher out of Dallas was less of a screwball though he remained hawkish. He was the one who said the game was in the ninth inning over a year ago. Since then he has become born again and takes most every opportunity available to bash inflation and talk tough on further rate hikes. Tuesday was no different. He offered an olive branch when he noted he was comfortable with the interest rate policy as it stands today, but still feels inflation is too high. If it remains high he warned the Fed would not hesitate to raise interest rates. He went on to talk about preventing inflation from rearing its "ugly head" and how the market knows this Fed has the resolve to do what is necessary to keep inflation under control. Blah, blah, blah. Fisher has gone from an interest rate liberal to one of the Fed's hatchet men. Thus you have to take everything he says with about a pound and a half of salt.
Poole was out again, and he can be a pain in the butt as well. He was much more philosophical on Tuesday, however. Indeed, he was almost sage. He talked of the need to let the bond market stabilize the US economy by virtue of market forces, noting that the decrease in long term interest rates is a built in stabilizer for the economy and the housing market. That makes a lot of sense IF the Fed follows the bond market's lead. If it was doing that it would control money flow as it is doing and then lower rates more in line with the bond market. Rates rose Tuesday but the inversion widened to 6 BP. If the Fed was listening to the bond market, it would cut rates 25BP to 5%, keep the restraint on money flow, and see if the inversion would right itself.
As we have discussed the past two weeks, if the Fed would back off the tough talk and take a proactive stance regarding the inversion as it has with the money supply, the inversion would be rectified. A bit of give on both sides would do the trick. Bond yields are rising after touching down near 4.5% (4.75% on the 10 year Tuesday). They are making the move higher, making that compromise. Unfortunately, Poole's comments were, as noted, likely more philosophical than practice. Perhaps he was tasked with priming the market for the eventuality of a cut based upon Bernanke's theories regarding the housing market and avoiding a Fed-induced recession. After all, this was totally new in this round of hikes, harkening back to what Greenspan used to talk about in the early 1990's, i.e. letting markets lead and the Fed follow behind, sweeping up. That was a long time ago, but it is worth reviving.
THE MARKET
MARKET SENTIMENT
VIX: 11.52; -0.16
VXN: 18.86; +0.58
VXO: 10.86; +0.05
Put/Call Ratio (CBOE): 0.83; -0.15
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: +3.66 points (+0.16%) to close at 2315.43
Volume: 1.786B (+17.69%). Solid jump in volume but given the weak Monday holiday trade you can put much into the percentage gains. It did make it back to average on the move, lending some credibility to the upside, but we note that volume was running higher on the early selling as well.
Up Volume: 919.35M (-13.553M)
Down Volume: 740.292M (+190.085M)
A/D and Hi/Lo: Advancers led 1.1 to 1. Weak again, but matched the prices. Solid on last week's breakout and then fading this week.
Previous Session: Advancers led 1.49 to 1
New Highs: 89 (-44)
New Lows: 16 (-10)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ stalled out near the interim highs in the early 2006 trading range on the high, holding some minor support at 2300 on the low. After the Wednesday breakout NASDAQ has not shown much strength as it continues to melt higher. Volume has faded as well as breadth. SOX keeps trying to show some strength but it keeps failing to follow through and lend support. NASDAQ looks a bit like SP500 here, running out of strength after the last bounce higher but not threatening to tank. Its inability to push higher with any strength after the breakout suggests a near term test to set up the next move, but thus far all of the indices refuse to give up any gains.
SOX (-0.37%) gapped a bit higher but once more could not make a move stick, being the only index to finish lower on the session. It continues its lateral move above the 50 day EMA, trying to catch the bid that will break it higher. From all indications, it is waiting for some solid earnings guidance to offset MRVL's start of the season with its lowered outlook. Several chip stocks look ready to break higher, just needing the trigger. We will see if earnings can provide the catalyst.
SP500/NYSE
Stats: +2.76 points (+0.2%) to close at 1353.42
NYSE Volume: 1.501B (+18.78%). Volume was higher on NYSE as well, moving up to average after the low Columbus Day trade. Positive to see it up on an up session but as with NASDAQ, volume was up during the early session selling as well.
Up Volume: 912.883M (+181.378M)
Down Volume: 537.36M (+43.733M)
A/D and Hi/Lo: Advancers led 1.21 to 1. Very modest, but matching the pricing step for step after a strong surge last Wednesday and Thursday. The A/D line has improved, but it is slow going in straightening it out.
Previous Session: Advancers led 1.59 to 1
New Highs: 110 (-98)
New Lows: 2 (0)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 was up, putting in another more or less lateral session in its four day lateral move at what looks to be the peak of its fourth bounce following the mid-August breakout. It refuses to give back any ground, an important feature of any upside move, showing continued support even at the higher prices. Remarkable show of strength after a 75 point run as it sets up for another move higher while holding onto all of its gains. We still view the odds against it getting out of October without another pullback, but for now we just let it set up its consolidation and see where it leads. Many of the large financials are well into strong runs along with the index, and as long as that momentum continues, SP500 will continue its momentum as well.
SP600 (+0.23%) moved above the July high (379) a bit further, a potentially significant move. The index was aided by the recovery in energy stocks that continued a two week rebound despite lower oil prices. The small caps are doing the work needed, i.e. building their base, tagging along with the rest of the market. At this stage of the economic expansion, tagging along is just about right for these stocks.
DJ30
Moving laterally as well, consolidating but refusing to give up its gains as it does. As with SP500, a pretty impressive show of strength but also likely to test lower again before October is through. It has moved a good distance since the August breakout (600 points) and about 1100 points off the July low. It is still just 6% above its 200 day SMA, however, and that would allow it to continue higher after this lateral consolidation. DJ30 and SP500 tend to struggle when they get 10% above that key level. Above 10% and they start to correct. That gives DJ30 another good run still before it starts to struggle.
Stats: +9.36 points (+0.08%) to close at 11867.17
Volume: 227M shares Tuesday versus a holiday light 178M shares Monday. Modest advance on a return to above average volume. It possibly indicates some churn, but given the holiday, the jump in trade was not that significant.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Crude oil inventories will be watched again, and FOMC minutes remain a key factor as investors look to see if the Fed is on the same page or just how much in-fighting is ongoing at the meetings regarding the pause. Bernanke seems satisfied he is on the right track, and there is a possibility that Poole's comments regarding following the bond market are the next phase in preparing the market for the Fed's next move. Remember, Bernanke floated the idea of a pause a few months ahead of the act. He got his beard singed on that one, and has now learned to let his minions do the dirty work and then he comes in batting cleanup when the time is right. Interesting, but the minutes are not likely to reveal anything along those lines this time around.
Earnings will drive much of the immediate market action starting tomorrow. Alcoa missed big after hours, and that could start some of the near term profit taking in some overbought large cap industrials. Alcoa, however, has been a laggard the past few quarters, unable to score good profits even when commodity prices were soaring. Now that they are lower its profit issues become even more acute. It started earnings off with a whimper in July, and while its issues were pretty much self-inflicted, it took a couple of weeks for the market to get over its miss. DNA was out as well, and it was up and down on its very strong earnings. It has the problem of being such a blockbuster earnings grower that investors don't know what to make of its results. The new drug sales surged while its older drug was a bit light. Once more, however, its earnings and revenues were just outstanding.
Perception is everything, however, and how investors perceive the economic future is how the market will respond. NASDAQ broke higher last week but still has room to move, and obviously so does SOX. You have heard that story before. SOX is set to move, but a couple of tries have yielded nothing. It remains poised, but it will need the earnings to give it the trigger to make the break.
Bigger picture, the NYSE large caps remain a bit extended and the Alcoa earnings may give them a reason to take a much needed breather. We need to keep in mind the slower action is also the result of some slower money flow after that start of quarter money moved in last week and helped break the indices higher. July got off to a rocky start as the first earnings came out, but then it found the bottom and rallied. The large cap indices could use a bit of a pullback to continue the run. As noted above, we will see how they respond to these first earnings; a pullback would be a good thing, giving them the pause to refresh and move higher. It also will free up some money for SOX to make the move higher if it gets a catalyst.
Support and Resistance
NASDAQ: Closed at 2315.43
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:
2284 is the 10 day EMA.
2273 is the recent September peak
2262 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
2221 is the August 2004/April 2005 up trendline
The 50 day EMA at 2209
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 1353.42
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:
1343.60 is the 10 day EMA
1339 is the late September closing high
The 18 day EMA at 1335
1334 is an October 1999 peak
1326.70 is the May 2006 high
1324 to 1329 from the October 2000 lows.
The 50 day EMA at 1313
1311 is the April closing high.
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 1286
1280.37 is the recent July peak.
Dow: Closed at 11,867.17
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:
The 10 day EMA at 11,781
11,750.28 is the prior all-time high
11,723 is the January 2000 closing high
The 18 day EMA at 11,702
11,670 is the May intraday high
11,642 is the May 2006 closing high
The 50 day EMA at 11,495
11,488 is the early September high.
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 11,169
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
October 10
Wholesale inventories, August (10:00): 1.1% actual versus 0.6% expected, 0.9% 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): 86.5 expected, 85.4 prior
Business inventories, August (10:00): 0.5% expected, 0.6% prior
End part 1 of 2
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