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us stock market, trade stock
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10/12/06 Technical Traders Report Update
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Technical Traders Report Subscribers:
MARKET ALERTS
Target hit alerts: Another day we could have taken some gain but decided to let stocks run given the strong finish
Buy alerts: BMRN; HOC; HOLX; GME; PKE; PLCE
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:
- Investors put the minutes behind it, rally yet again after Beige Book
- Trade gap jumps, indicating lower Q3 GDP but still a good holiday to come.
- October? New quarter money used up? Indices in extended runs? Investors don't seem to notice as money rotates into technology.
Tired? Nope. Just the pause that refreshes.
The market reaction to the FMOC minutes and the big positive to negative swing in semiconductors after the close Wednesday suggested it could be in for an October dip. If it is, it was not going to start on Thursday. Even before the open the futures were rising, overcoming the gloomy outlook from some of the chip stocks and an unanticipated record trade gap. Investors found solace in junk food, rallying behind the sales posted by MCD and Pepsico. We were up early to gauge the action. If you stopped to cram down an Egg McMuffin you missed the negative vibes holding over from the FOMC minutes and chip forecasts.
Still the open was not blockbuster. It was a small victory to open positive in the first place, so we don't want to be too harsh. Still, the action was pretty lame with SOX lagging in negative territory as the other indices posted some pretty mediocre gains. Nonetheless they showed moxie, holding their gains leading into the Fed Beige book at 2ET. When the Beige Book hit you would think the Fed recanted its tough stance on inflation. Stocks immediately resumed their rally after moving sideways for 2.5 hours ahead of the release. The move was pretty much straight up. NASDAQ tacked on 20 points, about two-thirds of its gain, after the report was released. Volume picked up the pace; it was down for the session, but it picked up nicely in the afternoon rally.
What got investors excited? Apparently just the right mix of strength and weakness in the Fed report. There was certainly nothing to indicate the Fed's September minutes were totally off course. The Fed saw a 'taut' labor market, a 'firming' service sector, strong commercial construction helping offset the housing slowdown. Despite all of that, the majority of districts reported pricing pressures were still 'contained.' The market took that as a throwback to the 1990's, i.e. growth but not that the cost of inflation. The market threw out Wednesday's worries of the Fed viewing itself as an inflation eunuch in need of a series of testosterone injections in the form of more rate hikes, and latched onto the overused Goldilocks economic analogy.
Whatever the reason, the market latched onto the positive and drove stocks higher into the close. Each time the market seems ready to fall in on itself after the long run and a series of serious issues from domestic to international, it finds another gear and moves higher. Thursday NASDAQ was in the lead, but the small caps were right in there pitching as well. SOX reversed from negative to slide in right behind the NASDAQ and the smaller issues. SP500 and DJ30 once more broke higher, this time from the narrow plateau formed the past week. Haven't seen that kind of pattern work since the late 1990's.
Technically it was a solid session, even more impressive as it came on the heels of the Wednesday pullback accompanied by some churning. The market answered that negative view of the Fed's outlook with more buying. Again, another sign of its continued strength. Volume was a bit lower but still solid as breadth expanded over 3:1 across both NYSE and NASDAQ. Leadership came from all across the market as metals, techs, small caps, industrials, and consumer products all rallied. Despite the chip equipment worries regarding the future, many chips enjoyed a good session. Leadership is a might nice and mighty important aspect of any move. Thursday it was coming from many directions.
As noted, SP500 and DJ30 blasted through flat weeklong plateau with convincing upside moves. NASDAQ surged through the top of the Q1 trading range, a key move that puts it on a collision course with the April high. That is the next key move for the market overall as DJ30 and SP500 have long cleared those levels, NASDAQ's move gives the rally even more credibility. NASDAQ is truly contributing to the move now, and SP600 made a very important move as well, clearing a key resistance level with panache. Technology has definitely joined the party.
We have had our doubts about the ability of the market to continue its move higher, but those doubts have not kept us from buying into the leaders as they have made their moves. You always watch how the market is performing internally and compare to history to give you some idea of where you are in a cycle. However, you still have to defer to the nuts and bolts, i.e. price/volume action and leadership, and act accordingly. You can think up some pretty impressive theories, but what matters is what the market does. When the leaders move in this kind of environment you buy them. That is why we have been adding positions for the past three months. We like the action in technology a lot, and we are going to continue moving into that area as it provides more opportunity. It will.
THE ECONOMY
Trade gap hits another record for August. The bad and the good.
Imports topped exports by $69.9B, pushing July's $68B record into second place. So much for forecasts of the gap narrowing to $66.5B. Just a few billion more, eh? There is a lot of debate about the trade gap and what that means to our economic future. Some say that those we owe money to are one day going to look elsewhere. More on that another time. There are two nearer term certainties we can take from this number.
First, Q3 GDP is going to be lower than anticipated. Gross domestic product is reduced by the amount imports exceed exports. It makes sense as you are counting the product produced at home. That will put Q3 GDP likely in the mid to low 1% range. Heck even the White House has come out and said GDP would range from 1% to the low 2% range, and when the White House comes out and talks about weaker numbers ahead of the release, you know it is front-running the damage control. Now that imports are more than expected, you can write the number down even more.
That must mean the economy is suffering, right. Yes it is to an extent. It is going through a slower cycle as most expansions do. The stock market, as we have discussed many times, is not viewing it as a deep downturn, just more of a routine slowdown leading to more expansion. Stocks look 9 to 15 months down the road, not next week. Thus this rally says more strength after this dip.
More than a recovery on the way, the strong imports coincide with the traditional holiday import season. Those overseas goods cannot arrive in November and be on the shelved and under the tree in December. They have to get here, offload, make their way to distribution centers, on to the stores, into the shopping cart, to the cargo area of the SUV, into the closet, then under the tree. Or if you celebrate Festivus, under the pole. That takes time and thus they arrive from the not so slow boat from China in July and August. July was a record. August was another record. Lots of goods coming over.
It is a fact of US economic life that when US citizens are making money and relatively confident in a solid economy they buy a lot of imports. Lots of imports. Some items we don't make here anymore, some are considered more prestigious than what we make here (that Mercedes under the tree), and others are just plain cheaper than we make here. We buy them all when we are in a good economy. The record imports mean likely a good holiday season. We have to reconcile that with the continued slowdown in trucking; the imports, running a few weeks behind this year, indicate truckers will be busy in the very near future.
Thus even though GDP will be lower, it is not just because we are producing less here. As noted, there is a down cycle within the economic up cycle. You have to look past the way the government keeps records, however, to see the full picture, something we are not strangers to.
THE MARKET
MARKET SENTIMENT
VIX: 11.09; -0.53
VXN: 17.66; -0.85
VXO: 10.88; -0.2
Put/Call Ratio (CBOE): 0.83; -0.09
Bulls versus Bears:
Bulls: 52.2%. UP from 49.5% and 47.4% before that. Making some big jumps as the market does the same. This has caught the April high and is moving closer to the January peak at just over 60%. 55% is considered a bearish indication.
Bears: 30.4%, the largest drop on the move, falling from 33.3%. Down from 35.4% before that and well off 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. It is still well above the 20% level considered bearish, and if it holds at a high level even as bulls move higher, it acts as a governor on the bullishness. 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: +37.91 points (+1.64%) to close at 2346.18
Volume: 2.031B (-0.53%). Volume was a shade lower but still solidly above average as NASDAQ broke higher, continuing the breakout from last week. Excellent volume when it was needed, i.e. as NASDAQ moved through resistance.
Up Volume: 1.747B (+907.083M)
Down Volume: 249.469M (-813.682M)
A/D and Hi/Lo: Advancers led 3.32 to 1. Excellent breadth once more.
Previous Session: Decliners led 1.47 to 1
New Highs: 168 (+104)
New Lows: 23 (+4)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ broke sharply higher, particularly in the afternoon after the Beige Book when NASDAQ added another 20 points to its gains. Volume was up as it pushed through the top of the Q1 range (2333) and is now ready to butt heads with the April high (2376). It still has work to do to get there, and when it does it will likely need some sort of consolidation, but the point is bigger: NASDAQ has joined the other large cap indices in making a key move. It broke out last Wednesday; key move. It has now shown a follow through to that move (7 days later), telling us that big money is still moving into the techs even as the recent leaders in food, consumer products and the like fade back (e.g. PG, GIS, CPB). We are going to continue looking for opportunity in NASDAQ as they set up.
SOX (+1.36%) posted a very nice turnaround intraday. It was lower to start with and lagged all session before it took off in the afternoon. We would like to say SOX has joined the party as well, but even with two decent upside days and its ability to fight through the LRCX downbeat outlook, it has yet to make the breakout from its lateral consolidation. Maybe that is just around the corner. We will see. We still see good patterns and if they make the breaks, we will be there. As we have seen on the report, we are already seeing some chips make their moves.
SP500/NYSE
Stats: +15.38 points (+0.95%) to close at 1362.83
NYSE Volume: 1.56B (-1.98%). Volume was off a bit but was still above average as the NYSE indices broke sharply higher. Two solid, not blowout but solid, sessions and a breakout on the second day.
Up Volume: 127.916M (-535.626M)
Down Volume: 257.775M (-651.738M)
A/D and Hi/Lo: Advancers led 3.8 to 1. With the small caps and mid-caps surging, breadth was doing so as well.
Previous Session: Decliners led 1.46 to 1
New Highs: 241 (+135)
New Lows: 2 (-3)
The Chart: http://investmenthouse.com/cd/^gspc.html
A week long lateral move, a shelf where it rested, and then a blast higher. Sure volume was a bit lower, but it was still above average and a nice return to solid trade as the index moved higher. A sweet move. Shows a bit of churn Wednesday but put that rumor to rest on Thursday with a strong surge to resume the breakout. Seems to be a bit tired, then springs to life yet again.
SP600 (+1.92%) was the market leader Thursday, rallying on that continued above average volume. SP600 made an important breakout Thursday, clearing a series of highs and lows at 385, the May and June ones being on the downside of the May peak. That makes a key higher high on the move, clearing the last peaks on the downside of that peak. Now it has a realistic shot at running toward its all-time high near 406.
DJ30
The weeklong shelf was just a way station as DJ30 blasted higher Thursday on some excellent volume. It is just thirty stocks, but it has been the poster child for this rally. The technology components are finally pulling their weight more evenly (HPQ has been in the game all along), and that, as with the overall market, is giving DJ30 continued life here in the stratosphere. It did not even come back on this last test, instead holding its gains, feigning a bit of weakness Wednesday with the higher volume churn. Not the case. With techs joining the party now that opens higher horizons for this index as well.
Stats: +95.57 points (+0.81%) to close at 11947.7
Volume: 291M shares Thursday versus 256M shares Wednesday. Solid volume jump as DJ30 broke higher from its flying plateau. Still buying even at this level.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Thursday NASDAQ provided a strong affirmation of last week's breakout move. It had wandered higher on lower trade after that move, and with SOX false starting once more, we questioned whether techs could make the next move. Thursday answered that as they shot higher and techs affirmed that they were indeed at the party and ready to dance.
Money is rotating out of other areas as we postulated the past week, and it is moving into technology. It is starting to move into semiconductors as well; if they come around the move will be in full flight. Even the smaller caps are showing solid action as money moves back around again, evidently on the belief that the economic expansion will be strong enough, even in its fourth year, to keep earnings growing at the small caps.
Stocks finished well Thursday and that momentum often carries over to the next session. If retail sales come out strong (released at 8:30ET) that will add some more fuel to the Goldilocks economy fire and we could get another surge higher in the morning. It is Friday and there has been another good week of gains. In recent history that has meant a Friday pullback, particularly as NASDAQ approaches the April high. Thus on another surge higher we are going to look to bank some of the gains building up in our plays.
We are also looking at some positions, even after the Thursday move, in those stocks that are in good patterns and break higher. These moves come in waves. Despite what you hear from the mutual fund guys on CNBC and Bloomberg, you don't miss a market move if you are not in the market 100% of the time, i.e. the buy and hold method. Market gains are made in waves as money rotates around. If the 100% in the market 100% of the time theory was true, you would be out of luck if you missed the rebound in the industrial large caps. That is not the case as we are seeing strong stocks break higher on big money now as the others that led higher pullback. Or there are stocks that rallied well before others and then sold off in the commodities and materials correction. They have based and are breaking higher again. That is rotation. That is what is happening now. That is why we continue to look at the next waves of emerging leaders.
Support and Resistance
NASDAQ: Closed at 2346.18
Resistance:
2376 is the April high, the post-2002 high
Support:
2333 is the top of the Q1 2006 trading range (the January and mid-March 2006 highs)
2316 from interim tops in January and March 2006 trading range
The 10 day EMA at 2299
The 18 day EMA at 2276
2273 is the recent September peak
2250 is the March 2006 closing low.
2234 is the June 2006 peak (intraday)
The 200 day SMA at 2225
2223 is the August 2004/April 2005 up trendline
The 50 day EMA at 2218
S&P 500: Closed at 1362.83
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:
The 10 day EMA at 1348
1339 is the late September closing high
The 18 day EMA at 1339
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 1316
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.
Dow: Closed at 11,947.70
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 6.8% 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 11,822
11,750.28 is the prior all-time high
The 18 day EMA at 11,742
11,723 is the January 2000 closing high
11,670 is the May intraday high
11,642 is the May 2006 closing high
The 50 day EMA at 11,526
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
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
FOMC minutes, September 20 (2:00): Worried about looking like girly men as inflation is above their comfort zone as measured by CPI and PCE yet they are pausing.
October 12
Initial jobless claims (8:30): 308K actual versus 312K expected, 304K prior (revised from 302K)
Trade balance, August (8:30): -$69.9B actual versus -$66.5B expected, -$68.0B prior
Crude oil inventories (10:30): +2.4M , +3.35M prior
Fed Beige Book (2:00): Seemed to strike the right chord, noting some slowing, continued economic strength, but no increased pricing pressures
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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us stock market
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