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10/24/06 Technical Traders Report Update
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Technical Traders Report Subscribers:
Full report issues Wednesday
MARKET ALERTS
Target hit alerts: Took some interim gain on COH
Buy alerts: ICE; ICON
Trailing stops: None issued
Stop alerts: PKE; TSRA
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:
- NASDAQ, SP600, SP400 continue their consolidation, trying to shrug off slumping semiconductors.
- Market view of FOMC decision: will Lacker relent or will he pick up allies?
- Economic data returns but focus is still on divergent earnings and, of course, the FOMC decision
Stocks stall a bit ahead of FOMC.
As with Monday, Tuesday started a bit softer and buyers moved in after the initial bounce lower. The upside had no staying power, however, and stocks turned back to negative. They spent just about all of the session below the flat line, trying a modest bounce midday, then selling sharply through lunch as oil rose (59.35, +0.54) and the Treasury auction was so-so. In the afternoon, however, the market once again started a slow, steady recovery. No surge, no rush of buyers, just a slow melt higher that took the NYSE indices, large and small, back above average on the close. NASDAQ could not make it positive, but it did not suffer dramatically as it continued its lateral move below the April high, looking for a reason to make the break.
It did not get any help from the semiconductors. SOX once again was lower as TXN's weak guidance was the last in a string of rather pathetic predictions regarding the future. SOX sank further below its 50 day EMA, still looking for some reason to avoid a complete collapse. It may get some help Wednesday as CYMI reported bad results but KLAC's guidance finally gave something positive to the chips.
Technically it was basically more of the same. NASDAQ rallied back from some midday selling close midrange for the session, continuing its lateral move below the April high and above the 10 day EMA. SP600 and SP400 put in more work on their handles, though they closed positive. The NYSE large caps (DJ30, SP500) stalled a bit, but that was no big deal, just a day the money did not chase them higher. There was some higher volume but it is hard to call it distribution. Positive on the SP600 and SP400, some churn on the large cap NYSE indices, a bit of distribution on NASDAQ. Nothing major given the patterns. Breadth was modest once more (+1.25:1 NYSE, -1.37:1 NASD), matching the moves just as you would expect it to do.
SOX remains the drag, heading the wrong way below its 50 day EMA. SOX is definitely not feeling well as many keynote chips have warned regarding the future. Tuesday it was hit because of TXN's outlook, and Tuesday after the close CYMI had a dismal view of things. On the other hand, KLAC viewed things better and was up $2.50 after hours. SOX is in the position of SP600 back in August; the small caps were not leading anymore and had turned to laggards. That is okay because the economic expansion is older and small caps don't have to lead. They just didn't have to break down. SOX does not have to be a leader at this point either. It just has to hold together and keep building its base. It has absorbed a lot of bad news, and though it is struggling, it has not broken down, holding the range of the past week. Perhaps after taking it in the gut day after day with warnings about the future it has had enough and KLAC can spark some buying. We will see. Again, all we want it to do for now is avoid a breakdown, find bottom, and start working on its base once more.
THE ECONOMY
Which way will the Fed lean on Wednesday?
The past two meetings Mr. Lacker has done what many have not for years, i.e. dissent from the decision of the majority. Many on Tuesday were talking about whether Lacker would relent and join the majority in voting for a pause. Not much has changed for the positive with respect to the Fed's inflation indicators, and thus we think this speculation may be looking the wrong way. Mr. Moskow has been quite vocal with his view on inflation, siding with Lacker in the spoken statements. The more likely view is that Moskow sides with Lacker and dissents, at least if you look at their public statements.
On the other hand, Moskow is an old hand at the Fed. We all remember his statements in 2000 about more people needing to be unemployed for the good of the economy. Even though we disagree with his Phillips Curve view of the world, he has a sense of decorum regarding Fed statements. Thus if he does join with Lacker, that is a strong indication they are building a wedge on the Fed.
The market won't take kindly to that, particularly with this talk of Lacker slacking off. If that is the expectation being brought into the announcement, that could make things interesting come 2:15ET on Wednesday. The likely outcome? Lacker dissents and Moskow goes with the group. Status quo as the Fed waits to see if the next inflation data is lighter.
THE MARKET
MARKET SENTIMENT
VIX: 10.78; -0.3
VXN: 17.25; -0.37
VXO: 10.44; -0.1
Put/Call Ratio (CBOE): 1.16; +0.41. Jumped higher on some rather modest tech and chip selling.
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: -10.72 points (-0.46%) to close at 2344.84
Volume: 1.919B (+3.54%). Volume rallied above average on the pullback, but was still well below the levels hit last week (of course, those were expiration week sessions). Some distribution, but NASDAQ also bounced back. We are viewing this as further consolidation action as it moves laterally.
Up Volume: 579.735M (+462.183M)
Down Volume: 1.317B (+660.614M)
A/D and Hi/Lo: Decliners led 1.37 to 1. Not bad at all (once again).
Previous Session: Advancers led 1.05 to 1
New Highs: 110 (-32)
New Lows: 41 (+6)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ started lower, chased down to the 10 day EMA (2337), and then rebounded to cut its losses in half. Modest distribution as volume was up slightly, but all in all another session in a good consolidation that is now just over a week long. We said NASDAQ needed to put in more time before taking on the April high (2375.54) again, and that is what it is doing. It is taking the arrows from less than great tech and chip outlooks and going about its business for another try at the April, post-2002 peak.
SOX (-1.13%) continues to sell after tapping at the 200 day SMA a week back. It tried to check up at the 50 day EMA (450.56), trying to rebound above that level Monday, but then dumping lower Tuesday on the TXN guidance. Maybe KLAC can give it a B-12 injection and get it back on track, but that is a tall order. It will likely struggle some more before finding its next low, but as noted above, all it has to do is hold the base.
SP500/NYSE
Stats: +0.36 points (+0.03%) to close at 1377.38
NYSE Volume: 1.691B (+9.54%). Some churn on SP500 but some positive action given the upside moves on SP600 and SP400.
Up Volume: 971.776M (-46.628M)
Down Volume: 692.961M (+185.408M)
A/D and Hi/Lo: Advancers led 1.25 to 1. Modest as the large caps churned a bit and the small to mid-caps could only post modest advances.
Previous Session: Advancers led 1.4 to 1
New Highs: 184 (-48)
New Lows: 18 (+5)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 sold but was never down hard, and in the afternoon it managed a recovery to flat. Another solid break higher on Monday out of that weeklong flat consolidation, a breather on Tuesday. It is extended, but thus far showing no signs of reversing. Some churn Tuesday deserves to be watched but for now that is about it.
SP600 (+0.20%) put in another modest gain, tapping at the 10 day EMA (387.04) on the low and closing near the session high. Still some excellent work in the handle of its base, setting it up for the breakout to try the May high up at 405.
DJ30
DJ30 put together a modest gain on top of the bit Monday break higher. DJ30 continues its rally, pause, rally, pause climb. Money did not flow its way Tuesday, so it took a breather. Again, what can you say about it? It has rallied well, is holding a strong uptrend, but is extended on this move, 8% above the 200 day SMA (11,226). Still a bit of room to move higher.
Stats: +10.97 points (+0.09%) to close at 12127.88
Volume: 257M shares Tuesday versus 288M shares Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Existing home sales, crude oil inventories, and the FOMC at 2:15 are the economic highlights along with more earnings. AMZN surprised the street and was up over $4 after hours. NTRI posted strong results and was on the run again. KLAC gave some good guidance and was treated well. The market has been split on the earnings with the industrial side of the economy posting good results for the most part and riding higher. Indeed, the big money is overlooking misses from the likes of CAT and still chasing these stocks. Love is blind as they say, or more like infatuation at this stage.
Again, maybe the AMZN and KLAC earnings can turn some money back toward tech and chips, particularly the latter. NASDAQ is setting up well, and it looks as if its move will come in due time. SOX is the weak link and has to find its bottom on this leg and start back to building its base.
Earnings will need some help from the FOMC. Despite the importance of earnings, the Fed has the trump card as it can take a good earnings picture and squash it as it did in 1999 and 2000. Thus the market wants to at least see status quo in the pause and the number and names of the dissenters. If no one dissents the result could be a big whoosh higher. The Fed doesn't want that; they will probably tell Lacker to dissent, expunging those comments form the minutes, of course.
Thus once more we have the market waiting on the Fed, watching to see if it is going to further assault the economy, buy some more time with a pause and the same old 'you better be good for goodness sake' language threatening a rate hike if there is not inflation improvement. If we get status quo the market will likely do what it has been doing, i.e. building for a breakout from NASDAQ and SP600. We doubt that would be the catalyst for the move, but when the Fed talks you just have to see how investors react.
Support and Resistance
NASDAQ: Closed at 2344.84
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 2337
The 18 day EMA at 2318
2316 from interim tops in January and March 2006 trading range
2273 is the recent September peak
The 50 day EMA at 2254
2250 is the March 2006 closing low.
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 1377.38
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 1366
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 1358
1339 is the late September closing high
1334 is an October 1999 peak
The 50 day EMA at 1331
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 12,127.88
Resistance:
Still climbing up the 10 day EMA and now 8% above the 200 day SMA. It tends to being struggling when it gets to the 10% level where it typically will start to falter.
Support:
The 10 day EMA at 11,999
The 18 day EMA at 11,913
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 11,662
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 2
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