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day trading, Breakout test
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10/23/06 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Target hit alerts: None issued
Buy alerts: AKAM; EZPW; FFIV; NTRI; RVSN
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:
- Market bounces higher again with NYSE large cap leading the way.
- Bond yields continue to climb back toward the Fed Funds Rate.
- Market continues to look past Q3 earnings issues.
No fear ahead of FOMC as investors use early softness to buy.
A series of earnings misses from a broad cross-section of the economy (ABFS in trucking, ETH in furniture, SLAB in semiconductors, and F in autos) had stocks on the soft side pre-market, looking to continue the consolidation of the past week, particularly on NASDAQ (needs a breather before it takes on the April 2006 high again). That did not last. Ten minutes into the session stocks rebounded from just a touch of early weakness and surged higher. The move was in all indices with SOX out in front, posting a gain better than 1%. Okay. Once again investors used a bit of weakness to move right back in.
Good surge in the first hour, but that was pretty much all of the move. Stocks spent the rest of the day moving laterally, unable to punch through the high on the early run. Moreover, the mantle of leadership for the day passed from techs and chips once more to the large cap NYSE stocks. NASDAQ came in third on the session and SOX lost more than half its gains as it gave back an early move above the 50 day EMA.
NASDAQ was not really ready for a move higher, needing some more time before taking on the April high. SOX wasn't ready for much of anything, still trying to recover from a couple of hard down days last week. DJ30 and SP500, however, after another weeklong lateral consolidation, broke sharply higher once more. That is a sign of new money coming into these stocks, chasing them higher as money managers that missed this move using every pause or rest as an opportunity to buy some more shares. With expiration out of the way they were ready to buy them again on Monday. Thus even though DJ30 and SP500 remain extended, the new money doesn't care; it just pushes them higher.
Technically things did not change much even with the move higher. DJ30 and SP500 are still extended on this run, but they were extended before the session as well. NASDAQ also needed some more rest before taking on the April high once more. It didn't take it and though it posted a gain Monday, it was on low trade and without the strength to punch through. Once more SOX tried to move but lost its mojo and closed below the 50 day EMA. The small and mid-caps really had the best moves of the session with respect to their futures: they held near support as they continued setting up the handles in their bases. They look to have a breakout ahead and a good pattern to back that move.
All indices burst higher as noted, but then could not advance the move after the first hour. Some new money after expiration was put to work, but not a lot of new money as volume remained low. Thus the burst higher and then the drift laterally the rest of the session. It still needs more time to set up and we are concerned about NASDAQ and SOX. There is a lot of money moving around the market, particularly in the large cap NYSE leaders. As noted, even the smallest rest gets bought. That tells you money is out there wanting to get in, an affirmation of the high bullish readings seen the past few weeks. Eventually they get their money all in and at that point those indices, already extended, top. Hard to tell when that occurs. For now DJ30 is still less than 10% above the 200 day SMA, and that gives it some more room to run. SOX remains an issue and Tuesday will be no different as TXN's guidance was weak.
THE ECONOMY
Bond yields continue to climb toward the Fed Funds rate.
There was not scheduled economic data out Monday, but the Fed has another report besides the Beige Book. The Blue Book is not widely followed, but it assesses not the economic strength or weakness covered in the Beige Book but financial health, money supply and the like. As with the Beige Book, it was more bullish on the prospects of the economy, revising some of the concerns of slowing that the Q3 slowdown showed. In short, it believes Q2 was a modest dip and that more upside is ahead.
That helped push bond yields even higher. Friday they closed at 4.87% and 4.79% for the 2 year and 10 year, respectively. Monday they closed at 4.91% and 4.82%. Both were up, pushing them closer to the Fed Funds rate at 5.25%. Indeed, this was the highest reading since just after the Fed paused in August when the bond market gave the Fed a vote of confidence with rising yields and a short-term reversion of the yield curve.
Unfortunately, the yield curve did not improve and move toward a reversion with the data. Indeed, the inversion increased to 9 BP; just a silly little basis point, but that is how it has nickled and dimed us from just a 3 point inversion less than a month ago.
Thus, you have the rise in rates toward the Fed Funds rate as a vote of confidence in the economy and implicitly in what the Fed is doing, but you also have that inversion that won't go away. The bond market is hedging its bets that the Fed could still go too far given all of the tough talk about restarting the rate hikes over the past three weeks. As we said before, it is key for the Fed to show the pause is a stop or that it otherwise really doesn't think the CPI and PCE are indicative of the direction of inflation. If the Fed stops, the hedge in the bond market goes away and we likely see the inversion revert just as it did after the August pause.
THE MARKET
MARKET SENTIMENT
VIX: 11.08; +0.45
VXN: 17.62; +0.92
VXO: 10.54; +0.08
Put/Call Ratio (CBOE): 0.75; -0.05
Bulls versus Bears:
Bulls: 52.2%. Held steady at 52.2% for the second week. Good to see it stall its advance some, but it is still too high. 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: 30.0%. Down modestly from 30.4% after a 3 point drop, the largest of the move, the prior week. Bears are down from 35.4% before that and well off the 37.1% hit in July (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: +13.26 points (+0.57%) to close at 2355.56
Volume: 1.854B (-3.22%). Volume slipped back to average to start the post-expiration period. Unfortunately that coincided with a with an upside session and showed lower buying intensity. As NASDAQ approaches the April high it will need some volume. Not a bad session at all, just aware of the volume as it approaches the old high. It will need some volume strength to do it.
Up Volume: 1175.52M (-853.864M)
Down Volume: 656.609M (-239.149M)
A/D and Hi/Lo: Advancers led 1.05 to 1. Flat volume on the upside session shows the lack of strength in the overall index. Even on NASDAQ it was a large cap move with NASDAQ 100 posting a 0.96% gain versus 0.57% for NASDAQ.
Previous Session: Decliners led 1.54 to 1
New Highs: 142 (+5). New highs are just creeping higher, not showing the strength you want to see as NASDAQ tries to test the post-2002 high. Not showing a lot of broad strength just yet.
New Lows: 35 (+1)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ turned a modest open into a nice gain though volume faded as NASDAQ approached the old high (2375.54). It really was not ready to make the move just yet as the lack of volume shows. It turned back once more when it started to hint it was close to the old high (2364) just as it did last week. NASDAQ is still in a nice consolidation, working laterally along the 10 day EMA (2335) and just below the April high. Despite the low volume Monday it is still solid as it is continuing its consolidation. The internals are not great, but it is in a consolidation mode.
SOX (+0.52) was the early leader gaining over 1% and clearing the 50 day EMA (450.71) on the high. After the first hour, however, it lost its drive and closed below that level. Having a hard time generating any sustained momentum after the hard drop last week. It is going to have a lot more to worry about Tuesday with TXN lowering its midpoint for revenues after hours.
SP500/NYSE
Stats: +8.42 points (+0.62%) to close at 1377.02
NYSE Volume: 1.544B (-5.55%). Volume faded below average as SP500 moved to a new post-2002 high and as SP600 continued its handle. Not the best action on a new break higher by the large caps, but very good action on the SP600 as it continues its consolidation.
Up Volume: 1.018B (+311.052M)
Down Volume: 507.553M (-372.713M)
A/D and Hi/Lo: Advancers led 1.4 to 1. Not great breadth, but given the SP600 is still in its consolidation and preparing for its breakout, not bad at all.
Previous Session: Decliners led 1.2 to 1
New Highs: 232 (+37). Getting better. When SP600 and SP400 make the breakout it should really blossom just as we want to see.
New Lows: 13 (+3)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 broke to a new post-2002 high, once more using a weeklong flat consolidation as the catalyst for another step higher as it continues stair-stepping up the 10 day EMA (1364). As noted it is extended and these moves just extend it further, but money is chasing the large caps. Not as much money, granted, given the volume was lower on the session.
SP600 (+0.23%) shows great stuff, continuing its pullback to near support, tapping it Monday at 385 and then rebounding to close above the 10 day EMA (386.53). Very nice action and thus the lower volume on the modest gain is no problem and is consistent with the handle forming to its base. Really like the action.
DJ30
Similar to SP500, DJ30 broke higher once more from its somewhat lateral move. DJ30 did not make that lateral consolidation, instead moving up the 10 day EMA (11,971) in its nonstop move that is forced higher given the money chasing performance. Volume was lower but still solidly above average, so you cannot complain, just watch it drag the rest of the market with it. It is now 8% above the 200 day SMA, and at 10% is typically starts to struggle.
Stats: +114.54 points (+0.95%) to close at 12116.91
Volume: 288M shares Monday versus 313M shares expiration shares on Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Once more no scheduled economic data on Tuesday, but with earnings in full glory and the FOMC holding a one-day meeting Wednesday, economic news would not hold a lot of sway anyway.
Earnings have not lit any fires, but outside SOX they have not caused much damage to the overall market despite some key misses and some poor guidance. DJ30 is at a new high, SP500 is at a new post-2002 high, and NASDAQ and SP600 are setting up for a break higher. Really have to like the action in the small and mid-caps as they form their handles, and NASDAQ, despite a lower volume climb Monday, is still working laterally, setting up the next run at the April high.
The market looks forward, not at the present, and even with guidance that is hurting semiconductors, overall the market is forging higher or at least setting up to do so. As noted, DJ30 has already forged ahead and we have to be concerned how much farther and what happens when the money is gone. On the other hand we have healthy rotation in the market, and we have NASDAQ, SP600, and SP400 setting up to breakout as well. We have talked about money rotating out of the large cap NYSE stocks as they make a pullback. They have not done that yet, but when that money does run dry for them and they stall for that inevitable pullback, given the patterns in the smaller caps and techs, we look for some of that money to move their way and break them higher.
Thus while many of the large caps are not in position to chase at this point, many stocks in good patterns are setting up to pursue them. Given the overall positive market action even in the face of Q3 results and the less than stellar near term guidance, we expect these stocks to get some money thrown their way when the large caps make that pause. Monday they were not ready to do that, but we are seeing stocks break higher every session, and when they do pause we could see very nice moves in these stocks.
The Fed is still out there, still the wildcard over the market. We are not expecting any hike from the Fed, but its statement and the split of the vote will be closely watched. Lacker has dissented the past two sessions and many wonder if Moskow will cross over as well. If he does the market will likely take that as a sign of the pause losing its backing. How the large cap NYSE stocks react to that news will tell us just how far ahead the market is looking.
Support and Resistance
NASDAQ: Closed at 2355.56
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 2335
2316 from interim tops in January and March 2006 trading range
The 18 day EMA at 2315
2273 is the recent September peak
2250 is the March 2006 closing low.
The 50 day EMA at 2250
2234 is the June 2006 peak (intraday)
The 200 day SMA at 2228
2227 is the August 2004/April 2005 up trendline
S&P 500: Closed at 1377.02
Resistance:
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:
1371 to 1373 is the December 2000 peak and the January 2001 peak
The 10 day EMA at 1364
1358 to 1362 mark a series of peaks from April 1999 to August 1999 high and the February 2002 low at 1360.
The 18 day EMA at 1355
1339 is the late September closing high
1334 is an October 1999 peak
The 50 day EMA at 1329
1326.70 is the May 2006 high
1324 to 1329 from the October 2000 lows.
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 12,116.91
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 7.9% 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 11,971
The 18 day EMA at 11,888
11,750.28 is the prior all-time high
11,723 is the January 2000 closing high
11,670 is the May intraday high
The 50 day EMA at 11,644
11,642 is the May 2006 closing high
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 25
Existing home sales, September (10:00): 6.25M expected, 6.30M prior
Crude oil inventories (10:30): +5.02M prior
FOMC policy statement (2:15): Fed Funds Rate at 5.25% and expected to hold at that level.
October 26
Durable Goods Orders, September (8:30): 2.3% expected, 0.0% prior
Initial jobless claims (8:30): 308K expected, 299K prior.
New Home sales (10:00): 1.05M expected, 1.05M prior
October 27
GDP advance, Q3 (8:30): 2.1%, 2.6% prior
GDP Chain Deflator, Q3 (8:30): 2.8% expected, 3.3% prior
Michigan sentiment (revised), October (9:45): 92.5 expected, 92.3 prior
End part 1 of 3
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day trading
Breakout test
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