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day trading, Breakout test
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10/16/06 Technical Traders Report
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Technical Traders Report Subscribers:
*NOTE**:
What was supposed to be a modest 2 to 4 inches of rain turned into 11, and we are fighting floodwaters tonight down here on the coast. Accordingly we have to abbreviate the report tonight.
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MARKET ALERTS
Target hit alerts: None issued
Buy alerts: BITS, NVEC, TSRA
Trailing stops: ICE
Stop alerts: ADI; VTAL
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:
- Market posts more gains as small caps, SOX rally well.
- Big reports start coming in with Fed looking at PPI Tuesday, CPI Wednesday.
Some mixed action as money rotates around the market again.
The market had to face some more Fed-speak (Bernanke, Poole, Yellen), and it did so without batting an eye. A bit of Fed overload perhaps? It also had to deal with rising oil prices ($59.94, +1.37) as talk of an emergency OPEC meeting to cut production got the oil traders all flustered. There were some downgrades (GE, HD), but also some positive news with INTC predicting strong Q4 notebook sales. Now we know what you are thinking: another INTC Q4 prediction that will likely go awry. Perhaps. INTC has been known to fumble in the fourth quarter with its predictions as to how many PC chips it will need to produce. The market seemed to hedge that thought as INTC gapped higher but closed flat on the session.
Given it was Monday, all of the news for the session, and the rally to end last week, the action was not bad. DJ30 moved to another new high, tapping close to 12K. The large caps were fairly tame, however, with the financials about the only group moving higher though with very muted gains versus last week. Large cap techs, after a good showing Friday, were weak to start the week. The winners were the small caps, pushed higher by a recovery in energy stocks, many of the dozens and dozens of small and mid-cap issues that find their home on SP600 and SP400. In addition, the semiconductors enjoyed some pretty good action as well, pushing its win streak to 4 straight and 5 out of 6.
Technically it was mixed as well. DJ30 reached toward 12,000, touching 11,997 on the high. SOX tapped at its 200 day SMA. NASDAQ came within 8 points of its April high. Key levels for SOX and NASDAQ, and a psychological level for the Dow. That can often signal an interim peak, particularly after a series of upside moves as seen on these three indices. Volume was lower, dropping below average on NYSE. NASDAQ trade was lower as well, but it remained above average. NASDAQ has put together a nice string of above average volume gains. Declining volume each session, but still solid trade on this run. After this run, however, there might be a shortage of trade to push it further. Breadth was solid on NYSE as the small and mid-caps pushed the action and their energy stocks were rallying. That pushed SP600 within 10 points of its all-time high; what a comeback and a continuing strong move from its Thursday breakout above interim resistance in its 6 month base.
All in all another bullish day though the indices did finish off their highs, likely due to that lack of stronger trade to really drive things higher, not to mention a week of gains ahead of the move. The market was moving on some momentum overall, but there were those strong sectors noted that scored solid gains (e.g. energy, semiconductors, materials, industrial metals). On these runs the market tends to show about a week of gains and then a pullback. Given the move was a lot of momentum Monday, a bit of a pullback is likely.
That is the story of this market: rallies, modest pullbacks, then rallies again. That is healthy action given the resurgence of breadth and solid trade. As always, we sound a bit of the caution alarm as the Dow, SOX, and NASDAQ have tapped at important resistance levels after another week run in a long move already for the Dow. We will continue to look for areas primed for upside moves if this rotation comes there way.
THE ECONOMY
Due to the flood troubles today we will discuss the economic news in detail Tuesday.
THE MARKET
MARKET SENTIMENT
VIX: 11.09; +0.34
VXN: 18.45; +0.62
VXO: 10.42; +0.16
Put/Call Ratio (CBOE): 0.79; -0.05
Bulls versus Bears:
Bulls: 52.2%. Getting too high but helped by the continued bearishness. 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: +6.55 points (+0.28%) to close at 2363.84
Volume: 1.854B (-7.14%). Volume faded again, but remained above average as NASDAQ posted another gain. You can criticize the volume as it has declined ever since the Wednesday doji that preceded the move higher, but over all it was a solid shot of volume to get the move started, followed by continued above average volume after the move.
Up Volume: 1.296B (-122.326M)
Down Volume: 498.722M (-20.262M)
A/D and Hi/Lo: Advancers led 1.78 to 1. Fairly solid breadth as NASDAQ continued its advance. Has improved, but not as strong as over on the NYSE with the resurgence of the small caps.
Previous Session: Advancers led 1.57 to 1
New Highs: 196 (+51)
New Lows: 18 (+5)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ posted its fifth gain out of six sessions, coming within 8 points of its April high (2376) but then backing off some at the close. The large cap techs were a big drag, rising just 0.2% versus the 0.28% on NASDAQ overall. It was an upside day, but not a stellar day for techs following the strong jump on Thursday that continues its breakout almost two weeks ago. Now that it is close to the April high and has moved on some declining volume, we could see it come back to test once more just as it has done all along on this move. The money was not rotating into the large cap techs Monday as it was to end last week, but we suspect it is going to come right back in after they fade just a bit.
SOX (+0.89%) was a market leader Monday, bolstered by INTC' prediction about notebook sales growth and a recovery in the integrated circuits sector that suffered since MRVL's earnings to start the month. Tuesday SOX tapped at the 200 day SMA (477.36, 476.95 on the high) and backed off some. It cleared the September high (473.35), and held that move to the close. This is a significant test for SOX; after four up sessions it may need to take a pause to refresh and then make another run. Might. It is showing some good strength here.
SP500/NYSE
Stats: +6.83 points (+0.25%) to close at 1369.05
NYSE Volume: 1.44B (-4.45%). Volume fell lower, this time dropping below average as SP600 surged higher while SP500 made a move but lagged. Solid volume to start the month, waning as the move continued. Still solid trade but it has lagged as SP500 has pushed higher on momentum and SP600 has made the breakout.
Up Volume: 890.304M (-17.206M)
Down Volume: 450.458M (-102.206M)
A/D and Hi/Lo: Advancers led 2.27 to 1. Another nice breadth session as the small caps jumped, giving the NYSE a shot in the arm.
Previous Session: Advancers led 1.44 to 1
New Highs: 302 (+19)
New Lows: 12 (0)
The Chart: http://investmenthouse.com/cd/^gspc.html
The large caps posted another gain, a rather modest one on below average volume as the big caps rallied on momentum on the third session of the break higher from the lateral consolidation to start the month. The volume and the smaller moves suggest it is already running short of conviction, not surprising so far into a run. It may come back to test after another reach higher, but we do note is has not shown any signs of wear and tear on this move.
SP600 (+1.04%) surged nicely for a third straight session, stretching last Thursday's breakout above mid-level resistance in its 6 month base. The small caps are trying to become leaders once more, aided by the recovery of energy and some industrial metals. Hard to complain about this move; all you can say is that NYSE volume was lower, but it was solid last week when the move started. It has to get through the peaks at 397 and at 402 before it can take on the all-time high hit in May (406; closed at 388.79), and after this move it will likely need a breather before it takes on that challenge.
DJ30
DJ30 came within 3 points from 12,000 and backed off. After three strong days of increasing trade, volume backed off to average as it made the reach. This is not a key technical level, but given DJ30 is in the new high zone, these levels take on psychological importance. DJ30 made modest moves Friday and Monday, but it is still a clear market leader. Indeed it has led so well it is quite extended. It tends to move higher 4 to 5 sessions on these runs and then test. At some point it is going to test lower, i.e. below the near term support, but it has not shown any inclination at this point to do so.
Stats: +20.09 points (+0.17%) to close at 11980.6
Volume: 217M shares Monday versus a strong 295M shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
PPI, industrial production and capacity, and net foreign purposes highlight Tuesday's economic data, and that is the warm up to the CPI Wednesday. That is the Fed backdrop to all of the other market action, primarily earnings. The Fed is still out there and talking rate hikes if inflation doesn't slow fast enough. Though inflation has been falling with indicators such as commodities, gold, ECRI and other leading looks, as we discussed last week, the Fed has adopted a set of indicators it has allowed to become primary, and when combined with its tough talk about where inflation should be (the 'comfort zone') it has left itself little room to maneuver. In short, we are concerned that though there is no reason to hike again, the Fed might feel compelled to do so to save its image as it discussed in the September minutes.
Of course, the Fed with Bernanke can be a wildcard; it paused when many said or felt it should not and the Fed did not lose any credibility re inflation. In any event Tuesday is PPI, and last month the declining energy really helped push it lower. That translated into the CPI but of course not the core CPI. That is not likely to decline this month simply because it is not a leading indicator. Unfortunately the Fed, as noted, uses it and the PCE as its publicly endorsed inflation indications. Thus when the CPI comes out hot again the market will have to deal with it.
That is on Wednesday, but with a rise in the markets ahead of the number it could set it up for a test of this last solid move higher. Earnings also flow more readily starting Tuesday, and they only pick up the pace from there. There is the view that earnings have improved so much for so long they are bound to disappoint. The market has built in some good guidance already as it came back from the summer slump. Again, that is a set up for a test if companies don't come in with some good guidance. Thus far the guidance has just about fallen 50-50 but it is early and we did not get a lot of warnings. Of course, companies don't always warn about the guidance, just the current quarter.
The indices have made a good break higher with DJ30 and SP500 well out in front on their moves. Last week they put together more upside, and with the tap at next resistance they need something to give them another push. Earnings and the CPI are likely candidates, but the latter is not likely to be good news. It remains to be seen just how strong the guidance is with respect to earnings.
Thus near term we expect to see some weakness after this run, just as the indices have shown in this rally: break higher for 4 to 5 sessions, then test. With the CPI Wednesday we could see another upside move ahead of that number and then wait for the fallout when it hits. Money continues to rotate around this market with stocks setting up and breaking higher, then another group doing the same. As noted above, we expect to see the large cap techs up again after a NASDAQ test following the Monday tap near the April high. We are going to continue to look for those setting up as well as those that made good breaks higher and have put in good tests.
Support and Resistance
NASDAQ: Closed at 2363.84
Resistance:
2376 is the April high, the post-2002 high
2384 is an interim peak from January 1999
2493 is an interim peak from February 1999
Support:
2333 is the top of the Q1 2006 trading range (the January and mid-March 2006 highs)
The 10 day EMA at 2319
2316 from interim tops in January and March 2006 trading range
The 18 day EMA at 2292
2273 is the recent September peak
2250 is the March 2006 closing low.
2234 is the June 2006 peak (intraday)
The 50 day EMA at 2229
The 200 day SMA at 2226
2223 is the August 2004/April 2005 up trendline
S&P 500: Closed at 1369.05
Resistance:
1371 to 1373 is the December 2000 peak and the January 2001 peak
1378 is a low from May 2000
1389 is a low from November 1999
1398 is a low from January 2000
1401 is a low from April 2000
Support:
1358 to 1362 mark a series of peaks from April 1999 to August 1999 high and the February 2002 low at 1360.
The 10 day EMA at 1354
The 18 day EMA at 1345
1339 is the late September closing high
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 1320
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 11,980.60
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 6.9% 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 11,871
The 18 day EMA at 11,787
11,750.28 is the prior all-time high
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 11,561
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 16
NY Empire Index, October (8:30): 22.9 actual versus 12.0 expected, 13.8 prior
October 17
PPI, September (8:30): -0.7% expected, 0.1% prior
Core PPI, September (8:30): 0.2% expected, -0.4% prior
Net Foreign Purchases, August (9:00): $53.0B prior
Industrial production, September (9:15): -0.1% expected, -0.1% prior
Capacity utilization, September, (9:15): 82.2% expected, 82.4% prior
October 18
CPI, September (8:30): -0.3% expected, 0.2% prior
Core CPI, September (8:30): 0.2% expected, 0.2% prior
Housing starts, September (8:30): 1.65M expected, 1.665M prior
Building permits, September (8:30): 1.715M expected, 1.727M prior
Crude inventories (10:30): 2.408M prior
October 19
Initial jobless claims (8:30): 310K expected, 308K prior
Leading Economic indicators, September (10:00): 0.3% expected, -0.2% prior
Philly Fed, October (12:00): 6.5 expected, -0.4 prior
End part 1 of 3
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day trading
Breakout test
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