|
|
us stock market, trend trading stock
* * * *
10/31/06 Technical Traders Report Update
* * *
Technical Traders Report Subscribers:
Happy Halloween!
Full report issues Wednesday
MARKET ALERTS
Target hit alerts: None issued
Buy alerts: IIG; NUE
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:
- Weaker than expected economic data keeps stocks moving laterally.
- Fed wanted a slower economy, and once again it got it.
- October goes out like September with NASDAQ still having something to prove.
NASDAQ tapped the April high but had no inclination of breaking it.
No real tricks or treats Tuesday as October slid out quietly with a mixed market, very similar to the way September ended. The economic data was a disappointment to the pundits and helped ratchet up the worries that the economy is heading toward something other than a soft landing. While weaker than expected, it was hardly the kiss of death as the numbers remained solid. Q3 was undoubtedly slower, and some of that has slopped over into Q4. That shouldn't come as any real surprise given that the economy doesn't typically adhere to precise calendar dates. Nonetheless the data prompted more water cooler whispers about the economic future and stocks basically when nowhere on the session. As we have noted the past few reports, that is not necessarily a bad thing as NASDAQ tries to consolidate and regroup for another run at the April high.
Technically the action was more of the same though there was a rise in volume on both NASDAQ and SP500. NASDAQ and SOX were up so you could argue it was an accumulation session, but the gains were too modest. When you look at the flat close on SP500 and the declines on DJ30 and SP600 you see more of a picture of some higher volume churn after some disappointing economic data. Nothing to get twisted up over, but another session of questionable volume as NASDAQ bumps against resistance and the large cap NYSE indices try to digest their last move.
There was some leadership moving higher again, but once more it was limited as a few more leaders try the water ahead of the overall market. There is still some more work to be put in before NASDAQ is ready to make the break and the equivocating volume has our attention given the high overall bullish sentiment, the extended runs on DJ30 and SP500, and the notable lag by SP600 Tuesday. All within the confines of a NASDAQ, SP600 and SOX consolidation, however, so we will give it some slack, particularly with the negative sentiment building the past few sessions. It is the countertrend to the overall bullishness, more of a short term worry that things are not as rosy as thought, the inability to push higher every day, and the approaching election that has more worried than they care to admit. Pretty good counterbalance thus far.
THE ECONOMY
There is no question: the Fed can slow the economy if it wants to.
We have talked extensively about the Fed's view that a slower economy means slower inflation. The 1970's showed the folly of that notion. Oh, you could prove that theory correct if you reduced output to zero for a few quarters; even the most stubborn inflation would subside if nothing was manufactured, bought, or sold. That is pretty much what the terrorists want out of the West, so that can't be what the Fed is after. There is, however, Moskow and his 2000 quips about more people needing to lose there jobs . . . Better stop there before I show up on the news as labeling Bernanke a terrorist.
In any event the Chicago PMI was lower than expected at 53.5 (58.0 expected and the lowest since August 2005) and well off the September's 62.1 that was the strongest since July 2005. Follow the bouncing ball. That volatility in itself may be telling us something as wide divergences typically indicate changes in trends. Thus far there is no change, and one miss is not a trend break.
Still there was weakness in 5 of the 8 categories, and one of the areas that was up was inventories as they hit a 3 year high. Indeed, the report was quite gloomy about those inventories, suggesting that the trends of late are more serious and if they continue to worsen they could lead to recession. Kind of hard for the market to be happy after that. The overall numbers, however, were not horrid. Production was a strong 59.2. Orders came in at 54.1. Employment rebounded to a solid 57.0. There does not seem to be the need for much gloom, but you also have to look at how trends unravel, and as noted, volatility is a sign that tells you to watch how the trend reacts ahead.
Confidence less than expectations, and though still comfortably high, causes worries.
At 105.4 confidence was nowhere near a danger level. Nowhere close. What rattled the pundits was the expectation of a big 107.8 reading given the continued fall in gasoline prices. It did not materialize, and even though September was revised higher (105.9 versus 104.5) the October number was viewed as a negative. One theory we heard was that the boost from declining gasoline prices had already run its course and now the holiday season was in jeopardy.
Wow. That is an awful lot of concern from a confidence report that is widely held as showing very little predictive ability with respect to how consumers spend. Talk about having to look to find reasons to be down. Indeed, future expectations rose 1.8% while current conditions fell 2.8%.
Election effect: the paradox of impressions.
Those lower views of the present are likely due to the election and the bombardment we receive daily about how bad things are in the economy and in the country. Hell, even I get depressed hearing all of the half-truths and misinformation; the talk shows are brimming with BS. That is what made the commercials in Tennessee such a relief; a bit of humor versus preaching.
Right now most people think the economy is just above the toilet level despite a string of almost amazing quarters of profit growth and exploding tax revenues. You don't get that kind of bottom line in a weak economy. Indeed, the Fed has tried to slow things down for a couple of years with that old 'slow the economy to fix it' mentality. People basically believe what they are predisposed to believe, and there is very little civil debate that allows presentation of issues in a manner that would allow a reasonable person to consider the facts and change his or her mind. Instead there is the back and forth bickering, and the audience hears what it believes already whether that is based on fact or the endless parade of blather.
Thus you can understand why sentiment gets a bit wishy-washy around elections. It always does. Therefore we are not at all worked up by the sentiment reports. They tell you little in normal times, and when an election is approaching they tell you even less. Better to take the read from the markets, and up to now they have been running higher. Present conditions, however, find a bit of gloom as discussed above. That is not bad in our view.
THE MARKET
MARKET SENTIMENT
VIX: 11.1; -0.1
VXN: 17.28; -0.71
VXO: 10.41; -0.24
Put/Call Ratio (CBOE): 0.97; +0.15. Bopped right back up near 1.0 on a bit of market ambivalence.
Bulls versus Bears:
Bulls: 52.7%, up modestly from 52.2% where it held for 2 weeks. Still advancing toward that 55% level considered bearish. Up from 49.5% and 47.4% before that. 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: 30.1%. Actually rose a bit from 30.0% as bears hold near 30% after dropping rather sharply from 35.4% before that and 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: +2.94 points (+0.12%) to close at 2366.71
Volume: 1.973B (+12.05%). Volume jumped back above average as NASDAQ tapped the April high but could not push through. Modest gain but no real accumulation; this was some churn below resistance to go along with the high volume selling Friday. Friday's trade was lower than the Thursday upside volume, but it shouldn't be totally written off. This churn represents some unloading of tech stocks, but we also note that NASDAQ 100 posted a decent gain and that was not distributive. Thus it is a wash but something to log and keep track of.
Up Volume: 1.095B (-213.879M)
Down Volume: 835.495M (+406.399M)
A/D and Hi/Lo: Decliners led 1.11 to 1. NASDAQ 100 rose 0.27%, and thus the gain on low breadth.
Previous Session: Advancers led 1.22 to 1
New Highs: 163 (+43)
New Lows: 45 (+7)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ gapped higher, sold off, then recovered for a modest gain. A lot of up and down with little to show for it other than a jump of volume back to above average. NASDAQ tapped twice at the April high (2376) but did not really make an attempt to break through. There was some leadership but it was scattered, not the swell you get when it is ready for a move. Still basically in the consolidation mode, but it is rising more than it is working laterally, and that is not the best action. The bounce up the past two sessions was a bit premature; it could have used a bit more testing toward the 18 day EMA (2337) and it may find itself there before it makes a real attempt higher.
SOX (+0.16%) is moving laterally, working below some resistance at 460 and above the 50 day EMA (451.66). This is the kind of lateral move NASDAQ needs to be putting in. No real complaints as SOX continues building on its base.
SP500/NYSE
Stats: +0.01 points (0%) to close at 1377.94
NYSE Volume: 1.747B (+22.43%). As with NASDAQ, volume jumped back above average as SP500 closed flat and SP600 lost 0.54%. As with NASDAQ, that suggests churn, higher volume turnover at the top of a run where shares are sold off. This is the first real sign of any selling on the NYSE and is definitely something to note as the indices play out the rest of the week.
Up Volume: 803.794M (+134.476M)
Down Volume: 914.498M (+184.031M)
A/D and Hi/Lo: Advancers led 1.06 to 1. Very modest gain for the upside given SP600 and SP400 closed lower.
Previous Session: Advancers led 1.16 to 1
New Highs: 281 (+118). Pretty nice showing all things considered.
New Lows: 24 (+5)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 was up and down as well in a relatively narrow range, managing once more to hold onto its gains by the close with an afternoon rebound. A second consecutive doji over the 10 day EMA (1375) as SP500 tries to put together another lateral consolidation that holds onto its gains. Volume jumped back above average, again showing a first day of churn. One day is nothing to get in a twist over; SP500 has shown similar action in prior lateral moves. It is extended as always, but it still is not giving up ground.
SP600 (-0.54%) took the biggest hickey on the session, but it was not a dive lower. Well, it was earlier in the session when it again fell toward the 18 day EMA (387.26) on the low but then managed to rebound and close at the 10 day EMA. Another good shakeout session and rebound on stronger volume. Some distribution but all within the confines of a pretty nice consolidation; with that rebound from a test of near support, we view this action as still constructive.
DJ30
DJ30 lost modest ground again on Tuesday, but as with SP600, it showed another doji that tested lower toward the 18 day EMA (11,995) and rebounded to close basically flat, holding the 10 day EMA. Volume jumped back above average on the move, suggesting some modest distribution, but DJ30 is actually putting together a little pullback to near support this time around. It did this in the earlier part of the run and it continues to show the same kind of action even with these gains already logged.
Stats: -5.77 points (-0.05%) to close at 12080.73
Volume: 231M shares Tuesday versus 206M shares Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
October slipped out reminiscent of September when that month sold on the last day and October started with more selling. Then a break higher and another month of gains. After bullishness climbed closer to overripe levels, the recent market action and the economic data has raised concerns regarding the economy and by extension the stock market. As we have noted, that is a positive near term and could help NASDAQ and SP600 with their consolidation attempts as the set up to retry near resistance. NASDAQ was setting up well, but this week it rebounded in a rather weak fashion, setting it up for another test back down to do some more consolidation work unless something pretty big steps up and drives it higher.
The big cheese economic report Wednesday is ISM manufacturing; following a weaker than expected Chicago reading this one is going to be dissected. A weaker than expected result and you get a magnification of the worry generated by the Chicago report. Oil inventories could help; they are expected to rebound after last week's surprise decline, and more pressure on oil prices has to this point aided retailers and the market on the belief lower prices will drive consumer holiday spending. As noted, after the confidence numbers Tuesday some were postulating the gasoline spending bounce was already empty. Not likely. Big, big difference between counting by 3's versus counting by 2's or less. That is money that is no longer going in the tank, and not all of it will be saved; indeed, not the majority of it.
The SP600 is still setting up nicely for another run higher while NASDAQ's rise this week has left it at resistance but without anything to push it higher. Thus NASDAQ faces some risk of a fade or at least some lateral work to try and regroup to set up the break higher. It needed a continued fade and shakeout to set up that next surge; instead it made a low volume move to tap resistance when it was not ready to make the breakout. In short, unless something unexpected comes along to drive it through the April high, we are not expecting NASDAQ to make that move over the next few days given the action this week. We stand ready to be pleasantly surprised if it makes the break on strong volume, and we will be watching strong stocks with leadership attributes in the even it does. When the leaders move you need to move with them.
Support and Resistance
NASDAQ: Closed at 2366.71
Resistance:
2368 is October handle high.
2376 is the April high, the post-2002 high. Just cracked through this level.
2384 is an interim peak from January 1999
2493 is an interim peak from February 1999
Support:
The 10 day EMA at 2354
The 18 day EMA at 2337
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 50 day EMA at 2274
2273 is the recent September peak
2250 is the March 2006 closing low.
2234 is the June 2006 peak (intraday)
2232 is the August 2004/April 2005 up trendline
The 200 day SMA at 2229
S&P 500: Closed at 1377.94
Resistance:
1389 is a low from November 1999
1398 is a low from January 2000
1401 is a low from April 2000
Support:
1378 is a low from May 2000
The 10 day EMA at 1375
1371 to 1373 is the December 2000 peak and the January 2001 peak
The 18 day EMA at 1367
1358 to 1362 mark a series of peaks from April 1999 to August 1999 high and the February 2002 low at 1360.
The 50 day EMA at 1340
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.
Dow: Closed at 12,080.73
Resistance:
Still climbing up the 10 day EMA but still struggling a bit. Back down to 7.3% above the 200 day SMA. It tends to begin struggling when it gets to the 10% level where it typically will start to falter.
Support:
The 10 day EMA at 12,065 has acted as support all the way up. When it breaks on the close that is noteworthy.
The 18 day EMA at 11,995. Likely to hold at least temporarily if the 10 day EMA breaks
11,750.28 is the prior all-time high
The 50 day EMA at 11,743
11,723 is the January 2000 closing high
11,670 is the May intraday high
11,642 is the May 2006 closing high
11,488 is the early September high.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
October 30
Personal income, September (8:30): 0.5% actual versus 0.3% expected, 0.4% prior (revised from 0.3%)
Personal spending, September (8:30): 0.1% actual versus 0.3% expected, 0.2% prior (revised from 0.1%)
October 31
Employment cost index, Q3 (8:30): 1.0% actual versus 0.9% expected, 0.9% prior
Chicago PMI, October (10:00): 53.5 actual versus 58.0 expected, 62.1 prior
Consumer confidence, October (10:00): 105.4 actual versus 107.8 expected, 105.9 prior (revised from 104.5)
Trick or Treat (6:00 on)
November 1
Construction spending, September (10:00): 0.0% expected 0.3% prior
ISM, October (10:00): 53.0 expected, 52.9 prior
Crude oil inventories (10:30): -3.2M prior
November 2
Initial jobless claims (8:30): 310K expected, 308K prior
Productivity, Q3 preliminary (8:30): 1.1% expected, 1.6% prior
Factory Orders, September (10:00): 3.6% expected, 0.0% prior
November 3
Non-farm payrolls, October (8:30): 125K expected, 51K prior
Unemployment rate (8:30): 4.6% expected, 4.6% prior
Hourly earnings (8:30): 0.3% expected, 0.2% prior
Average workweek (8:30): 33.8 expected, 33.8 prior
ISM Services (10:00): 54.5 expected, 52.9 prior
End part 1 of 2
|
us stock market
trend trading stock
|
