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us stock market, trend trading stock
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12/26/01 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERT SERVICE
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- Indexes drift higher on upbeat retail news until new Bin Laden tape hits the air.
- Low post-holiday volume as indexes bump resistance yet again.
- Looking for holiday rally to continue through the new year.
- Team Trades
A good start for the 'in between' week, but it could have been better.
All morning the futures were drifting higher on their own accord, and then WMT came out and announced that its holiday sales period (November 23 to December 24) was going to be better than plan with earnings at the top of the forecast range. That accelerated the futures gains. They were not big gains, but watching the momentum build higher all morning, it looked as if the markets would continue that momentum when they opened. When YHOO then announced that its online sales were up 86% year over year, things really started to look positive.
All major indexes were trading higher in the first hour and then moved laterally for 5 hours. During that move, many fine stocks moved higher, building good volume through the afternoon. That gave us several good buy points and some add-to points late in the session that we focused in on with the alerts.
It was going to be light volume, but then again, on this week between Christmas and the New Year we expect light volume. Then news of a 'new' Bin Laden tape came out and the indexes sold back. They managed to hold positive for the session, but the big indexes all shaved off about 50% of the session gains during the last hour before the final bell after news of the tape hit. The final analysis of the tape is not in, but early word during the session was that it was apparently filmed before the 12-12 bombing of Tora Bora; thus, it did not answer the question: dead or alive? It appears the market acted in a knee-jerk reaction (remember, all first reactions go too far before seeking equilibrium again), and if there is nothing new to show the tape was made much more recently, the buyers will again see this as a buying opportunity to take advantage of the holiday rise. That is what we were doing today.
Indexes bump resistance points again and fall on the late afternoon news.
The Dow was trading well above the 200 day MVA on its high (10,169.09; 200 day=10,098.27). Indeed, just before the Bin Laden news hit, the Dow made a quick, strong move to the session high. On the news it turned immediately lower and gave back 82 points to the close. In doing so, it swept back below the 200 day MVA; though it tried to bounce in the last 20 minutes, it did not make it. The S&P tried to make a run at the 200 day MVA (1168), but it folded up shop and closed below resistance at 1150. The Nasdaq cleared the gap up point at 1980, a point becoming more important based on the recent action, but it too gave that up as it slipped sharply in the last hour.
Volume was sharply lower for the first full session after Christmas. On the NYSE, it was the lowest of the year. Given that, even if the indexes cleared the resistance levels and held them on the close, we could not take too much comfort in the move. Unless an upside move is backed by strong volume, it remains to be seen if that move can withstand serious sell attempts and thus become support. Today's action while disappointing, was not definitive either way.
Holiday rally to continue?
The action we saw today was instructive as to how investors are going to react this week. On its own and with a bit of positive news the indexes were able to rally quite well even if it was on low volume. Again, low volume is a hallmark of holiday rallies. They can provide good moves in stocks and the indexes, but they may or may not have staying power. We take advantage of those moves to put money in the bank. If they start to falter we can close those that moved higher on low volume. We also were involved in some individual stocks today that moved up on excellent volume; those will tend to hold the gains better or at least give us more reason to hang onto them when the moves take their inevitable rests.
Despite all of the market negatives the past year or two it is worth noting that the S&P has provided positive returns in the yearend rallies. This is the move we were writing about last week that we wanted to take advantage of. Given the action we saw today, there was not a lot to change the belief this market can provide an even better return. Why? It was rising well before specific news sent it lower. When it is analyzed, that news reveals nothing to change the picture; in other words, there is just another Bin Laden tape out there that was filmed before the bombing and could have been filmed even before the prior aired video was filmed.
The 'drift' in the market appears to be upward. We feel the economic news this week (jobless claims tomorrow, consumer confidence, durable goods, home sales, Chicago PMI on Friday) will provide upside stimulus or at the least not hamper the upside bias that typically accompanies this 'in between' week. Moreover, with news such as S&P projecting average market Q1 profits up 10% (greater than street expectations), the short term impetus indeed seems to be upside barring any adverse revelations regarding Bin Laden.
THE MARKET
Nice drift higher on the session. The late selling on the Bin Laden news was disappointing, but it was not of the nature that changed the character of the week. We still see the overall bias as up, and we feel the buyers will view this afternoon's selling as a chance to step in to take part in this holiday rally.
VIX: 22.93; -0.28. No real movement by the index this session, but it is flirting with that really depressed level of 20 to 22 it banged around in during the summer doldrums. At this point, however, we cannot get too wound up in this secondary indicator; volume is light and it is the holiday week. We will see what happens more with this after the New Year. We will watch it, but we are not getting too upset at this point.
VXN: 49.06; -0.38. No real change here as well, but it too is above the summertime blues. It is worth noting as discussed with the VIX above, but it is still in acceptable levels, and it is a secondary indicator.
Put/Call Ratio (CBOE): 0.58; +0.04 (0.69 Friday; 0.54 Monday). Fell again on the session gain, but is still at a comfortable level above 0.4.
Nasdaq
The leader of the session, but lost half of its 1.5% gain. Did not hold above the gap up point at 1980 it took out early in the session, but the bias appears upside for the week.
Stats: +16.22 points (+0.8%) to close at 1960.70.
Volume: 1.127 billion shares (+100% from Monday; -52% from Friday). Extremely light volume for a full session, and thus any moves up or down do not have the seal of authority. Pretty much what we would expect, however, for this week.
Up volume: 803 million
Down volume: 311 million.
A/D and Hi/Lo: Advancers led again at 1.46 to 1. It was better earlier in the session, but not a bad showing.
New highs: 118 (+32)
New lows: 32 (-2)
The Chart: http://www.investmenthouse.com/cd/$compq.html
YHOO helped set the stage for a more positive session with its report on vastly improve online sales. The Nasdaq opened higher, built some steam, and then really took off. Semiconductors and networkers were again in the lead, but the move was rather broad based. On the high (1983.84) it beat the early December gap up point, but it could not hold that move on the Bin Laden news. It and the semiconductors sold down, showing a shooting star or hammer doji, and that could be a positive. To us it shows that the bias is upside without any negative shocks. Heavyweights such as NVDA, IGT and EMLX showed positive moves, but there are a lot of other smaller stocks that continue to look very interesting (e.g., AUDC, DIAN). The fact that the index closed below the 1980 level after trading above it is not a positive, but we note that it easily held above the tops of the prior consolidation at 1934 to 1941 after undercutting those levels last week. It could easily drift right back above that level in this type of market.
Dow/NYSE
The Dow is getting even more interesting now as it once again traded above the 200 day MVA and failed to hold the move (last done on December 6). The pattern is shaping up; it whiffed on today's attempt at crossing the 200 day MVA, but not all is lost just yet.
Stats: +52.80 points (+0.5%) to close at 10,088.14.
NYSE Volume: 792 million (-79% over Monday; -56% from Friday). Volume was the lowest of the year barring half trading days. Again, however, it is usually light this week and hard to gauge. That is why we look at individual moves for strong upside and strong downside. Many moves today were strong upside.
Up volume: 513 million
Down volume: 251 million
A/D and Hi/Lo: Advancers looked very solid at 1.93 to 1 (1.88 to 1 Friday). Very nice, very broad.
New highs: 133 (+55)
New lows: 30 (-18). Nice action to go along with the A/D line.
The Chart: http://www.investmenthouse.com/cd/$indu.html
The Dow was unable to take out the 200 day MVA (10,098.27) as price tailed off in the last hour. It tried the 200 day MVA in early December, bumped against it again 5 sessions ago, and cleared it intraday today. As noted before, a stock or index usually gets three shots and if it cannot make it, fails and falls further. That still holds, but we see some action that mitigates that a bit. The index is being squeezed between the 200 day MVA and roughly the 50 day MVA (9792.64) or even higher at 9992. It is trying to build a wedge where pressure builds from below; it is not a perfect wedge and the 200 day MVA is strong resistance. With the low volume it is harder to get a read on the action, but we note that the action to the downside was based on that video. We believe it will try the 200 day MVA once again and clear it. Now it will most likely not be on high volume, and thus whether the move ultimately sticks is more problematical. We can play the move, however, then watching for the 200 day MVA to hold on down the road after the New Year starts.
S&P 500: Similar intraday action with a move to a high (1159.18) toward the 200 day MVA (1168.00) and then failing and closing with a hammer or shooting star doji. The pattern is not as close to the Dow's attempt at an ascending wedge, but it has been a tight trading range for the past 5 sessions. It is important to note that the index sold back late to close just below resistance at 1150; that level is right at the late November high that forms the left shoulder in a potential head and shoulders pattern. The action now is important: will it start to fail at this resistance level to complete the pattern (breakdown at 1125)? The key is will it follow a drift higher by the other indexes, or will it lead a breakdown? It has been the weakest of the three of late, but it could follow the other two higher toward that December high (1173.62) or 200 day MVA before it double tops and fails. We think the overall market bias is up for this week, and thus it may rally up to the 200 day MVA or that December high and then turn back down if buyside volume does not really blossom.
Stats: +4.72 points (+0.4%) to close at 1149.37.
Volume: NYSE volume plunged to the lowest level for a full session this year (792 million; -79% over Monday and -56% from Friday.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
The market was moving easily higher albeit on low volume when the Bin Laden video hit. The bias is still positive absent any negative news. If job claims continue their trend and we get some decent numbers Friday, it appears as if the indexes will try to rally higher. It may be on lower volume again, and that makes the move ultimately suspicious if not confirmed with stronger volume upside moves next week when all of the fund managers and other investors get back to work in the market. As we noted last week, however, we have been looking for investments that are taking advantage of this move and doing so out of good patterns on good volume. those give us a bit more comfort even if the overall market is not powering ahead on stronger volume. We see many small issues and some big names that made good moves today and that are still set up well.
Thus, we are going to look for more upside on individual plays as we saw today. Futures are slightly down, but that means very little for tomorrow's action. We would like to see a slightly soft open and then investors decide that the Bin Laden news was nothing new and then step in and start buying. We sound like a broken record on that one, but that creates the easiest intraday buy points and it tends to hang onto those gains. What we do is just look for our targets to be hit and latch onto them and let them make the moves for us. This is a week to ride some upside momentum that is typical this time of year. It gives us a good momentum run and it also gets us in on some good stocks in good patterns and profitable in them quickly even though we want to hang onto them longer term.
We will continue to watch the action of the Dow and S&P just below the 200 day MVA to see if they can drift and hold above them or if they are going to hit and roll over. We do not think that will happen this week; if anything, if there is a rise this week we will have to buckle up for the analysts coming back to work January 2 and the following Monday. Before then, however, we can have a nice little momentum rally on the holiday cheer to get a head start on good positions or to bank some profit if we get a nice gain and don't want to run the gauntlet of analysts returning from the holidays.
Support and Resistance
Nasdaq: Closed at 1960.70.
Resistance: Moved over the gap up point at 1980, but could not hold the move. That is becoming more significant. The December interim top is at 2010.91. The up trendline is at 2035.
Support: The 200 day MVA (1927.79) is where we want it to hold on any test, but the 1934 and 1941 levels are decent support. After that the 50 day MVA is at 1892.00.
S&P 500: Closed at 1149.37.
Resistance: 1150 (former price consolidations). The 200 day MVA 1168.00. Then the December high at 1173.62.
Support: 1125, former price consolidations, and the 50 day MVA (1129.72). After that, 1100 is next (top of the October consolidation range).
Dow: Closed at 10,088.14.
Resistance: The 200 day MVA (10,098.27) remains the level to beat. The December high is at 10,169.44. The up trendline at 10,180.
Support: 9992 would be nice but it has not held with much consistency. The 50 day MVA is at 9792.64. After that, 9500.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
12-27-01
Jobless claims (8:30): 400K expected versus 384K prior.
12-28-01
Durable goods orders, November (8:30): -5.5% expected versus +12.8% prior.
Consumer confidence, December (10:00): 83.0 expected versus 82.2 prior.
Chicago PMI, December (10:00): 45.0 expected versus 41.1 prior
Existing home sales, November (10:00): 5.17M expected versus 5.17M prior.
New home sales, November (10:00): 895K expected versus 880K prior.
TEAM TRADES
Even with the light volume we were seeing good moves take place today. One sector that we like a lot because its components produce great moves from time to time is the scientific and technical instrument group. AUDC is one of those stocks, and we were looking for it to move higher in its wedge pattern. Today it starts a solid move on solid volume. We were looking for a move over 4.60 to 4.61, and it made that move with just over an hour left in the session. Volume was solid and we went ahead and entered a stock position on the break over 4.60 after we issued the alert. It continued to move well, and then toward the close started to back off from the high. Volume was excellent, so we viewed that as another opportunity to take positions on this stock that was moving on solid volume when the overall market volume was light. As we have discussed in the past, we very often revisit positions that we took earlier in the session during the last hour to half hour of trading. We did this when we worked elsewhere or if we are on the road on vacation. A quick check on the computer or call to the broker to see what is happening. Today volume was very good as was the move. We were able to take a few more positions at 4.65; the stock did what we thought it might, i.e., rally into the close after a brief pullback. The stock closed at 4.87; after hours a few trades came through at 4.65, but those looked like just 'cleanup' trades that may have been made earlier; the ask was back up at 4.92 after those trades went through.
End Part 1 of 2
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