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11/06/06 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Target hit alerts: NYX
Buy alerts: CEPH; CXW; NTGR; SEIC
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:
- No hesitation ahead of election as stocks post solid rebound gains on so-so volume.
- A pause in economic data as we await the election.
- Already back at the October highs without much rest.
Stocks answer rocky prior week with big price gains.
There were the deals (ABT buying KOSP; FS going private; OSI going private; SWFT likely to do the same). There was international intrigue (Hussein sentenced to hang by the neck until dead; any election timing issues here?). There were the polls (GOP surging back after Kerry opens mouth, pulls a 2004). There was the Fed talking tough love again (Moskow, too lazy to re-write speeches, says Q4 will be solid, rate hikes may be necessary). Was it any one in particular, a combination of all, or something completely unrelated? Stocks surged back Monday, starting stronger, resting midday, and then rallying to close near session highs. The gains were across the board with stocks of all stripes rising, pushing back toward the October highs.
The market was knocked around last week, suffering some distribution and threatening to fall out of their ranges and uptrends. There was some selling ahead of the election, and Monday there was some short covering of positions as the GOP staged a comeback over the weekend. Talking to brokers and floor traders, there were also some buyers seriously going long after this modest pullback. Seems money is still chasing, trying to find opportunities to move into the market. Even with NASDAQ in a rather indeterminate lateral move here, money still elbowed its way in, helping drive prices back up.
Technically the action was mixed. Once more the market did what it had to do when challenged, i.e. rebounding from threatened breakdowns. It resumed the low to high intraday action (though it really started higher and finished even higher, showing once again that what one considers high is just a signpost on the way even higher). Breadth was truly impressive (3.1:1 NYSE, 2.2:1 NASD). Volume was modestly higher but could not crack above average; some accumulation given the rising trade, but modest as the volume was not commensurate with the impressive price gains.
The strength in the internals managed to push the indices higher to the close, and the close placed the large cap indices just below the October highs. NASDAQ once more did not put in much time away from that level with its quick trip lower to end last week. DJ30 and SP500 wasted no time rebounding from the 18 day EMA as once more new money saw its chance and jumped in. SOX posted just a 1.76% gain; yes it led the market, but with its high beta it usually trounces the other indices. A downgrade did not help it, and as with recent comments here, all it has to do is continue basing, and Monday it did that with a recovery above the 50 day EMA. SP600 responded well also, bouncing off the 382 support as expected, but it still has work to do as it is well below its October high. Leadership was putting on some good moves off the recent tests, a key element in a recovery. Even there, however, volume was spotty.
In sum, it was a rebound session but not clearly a solid return to buying. Once more this market did what it had to do when confronted with a breakdown, buying it time to continue the consolidation and set up for another NASDAQ attempt at a breakout past the April highs. Not bad action given it looked to be on the ropes to end last week, but still looks as if it needs more work before it can make a breakout stick.
THE ECONOMY
A rather pleasant lack of economic data Monday, and even a dearth on Tuesday until the consumer credit report that afternoon. Given the election this is rather appropriate and needed after a week filled with data. Of course, Moskow could not keep quiet, once more putting in his two cents with respect to the need for more rate hikes. Lacker is the designated dissenter on the FOMC, but Moskow is as good as a dissenter, and if he was voting right now he would likely be there with Lacker.
THE MARKET
MARKET SENTIMENT
VIX: 11.16; 0. Holding those low levels hit in July and December 2005 and March 2006 lows that saw pullbacks in the market. Again, those pullbacks were not major sell offs (at least other than the July one and the typical summer fade); they just set the stage for another run after a consolidation. It is important to keep in mind that VIX can stay low for a long time, for years, and still have no impact. The other market factors have to come into play, and indeed, VIX often RISES as a long expansion nears its peak.
VXN: 17.39; +0.16
VXO: 10.47; -0.2
Put/Call Ratio (CBOE): 0.76; -0.17
Bulls versus Bears:
Bulls: 53.7%. Ticking higher again, up from 52.7% and closing in on the 55% level considered bearish. Had hoped from some softening after the struggles in the market the past week, but no go. 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: 28.4%. Starting to fade with a sharp drop from 30.1%. Down from 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 remains well above the 20% level considered bearish but is back to heading that way with more speed. 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: +35.16 points (+1.51%) to close at 2365.95
Volume: 1.925B (+2.04%). Volume edged higher but was still below average as NASDAQ blasted higher. The volume gain was nowhere commensurate to the price gain even though the percentages of each were close. Typically such a move has more volume power behind it, and above average volume at that.
Up Volume: 1.593B (+759.15M). There weren't many sellers, however.
Down Volume: 317.195M (-700.709M)
A/D and Hi/Lo: Advancers led 2.24 to 1. Nice breadth, a welcome return to the solid breadth seen through mid-October before things started to get a bit shaky.
Previous Session: Advancers led 1.37 to 1
New Highs: 151 (+68)
New Lows: 50 (+2)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ gapped higher, held the gain on a modest test, then rallied close to the April high on the high (2372 Monday versus 2376 in April). It faded in the last 10 minutes, and that took some of the sparkle off the price gains and its attempt at the April high. It also showed that level is still a pretty important resistance level as NASDAQ turned and ran from that level. Volume was up a hair, but as noted, it was still below average and thus the move lacked real punch. It likely is not ready to make the breakout still, having just been whipped lower last week just to again rebound to resistance on low trade. Definitely a fight ongoing between bulls and bears, but you always have to watch volatility with some concern, particularly when it occurs after a run higher. As noted over the weekend, NASDAQ has a bit of a toppy short term pattern, and though the price move was impressive, Monday did not alter that just yet.
SOX (+1.76%) led the percentage gain but it was no blast off. It managed to recover the 50 day EMA 451.53) it gave up last week, but that was no major feat. It keeps it in the 7 week lateral move between 445 and 475. That is what we want, just working through the base.
SP500/NYSE
Stats: +15.48 points (+1.13%) to close at 1379.78
NYSE Volume: 1.524B (+0.77%). Volume bounced but as with NASDAQ, it was still below average, not able to match the strong price moves and lower than the distribution volume last week.
Up Volume: 1.258B (+598.548M)
Down Volume: 251.994M (-578.836M)
A/D and Hi/Lo: Advancers led 3.12 to 1. Surging breadth as both the large caps and small caps worked together.
Previous Session: Decliners led 1.17 to 1
New Highs: 198 (+79)
New Lows: 18 (-9)
The Chart: http://investmenthouse.com/cd/^gspc.html
After closing below the 18 day EMA (1368) for the first time since early September, SP500 was vulnerable to more downside given the strong 3.5 month run to the Friday close. Once more, however, there is still a push to chase these stocks, and that close signaled time to buy for those looking to get in. They did just that and shoved SP500 back up and kept the trend going. Volume was not convincing; the buyers trying to get in were not the force they were on the other tests. It remains to be seen if they can push the large cap index to a new post 2002 high once more. It remains extended and last week it was showing its age. The trade is the most telling part of the Monday move.
SP600 (+1.33%) fell out of its October lateral move last week, but managed to hold price support and the 50 day EMA (380). That set it up for a bounce and we noted it looked good over the weekend. We did not expect it to make such a quick and strong move. It didn't breakout or anything like that as it closed in the midrange of its October move. It responded well to a pullback to support, and that keeps it in the game to continue its consolidation and working on putting together another breakout attempt.
DJ30
DJ30 closed modestly below the 18 day EMA (12,011) Friday as well, and that was enough to send it higher when money elbowed its way in at the first opportunity. Volume was lower as well; buyers held the day but they were lower in number in the bigger picture. Once more the blue chips rallied and continued their run. Hard to fight success but it is extended and moving on low volume. Not the best place to buy in.
Stats: +119.51 points (+1%) to close at 12105.55
Volume: 211M shares Monday versus 198M shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
The only scheduled economic data Tuesday is Consumer Credit out at 3ET. That leaves the market on its own until then. The CC might be more important this time; many are concerned about the holiday season, and if the consumer is not piling on the credit as usual that many mean he and she pulls in the horns. Maybe.
Oil will still be an issue. It wasn't Monday even though it was up on the session (60.02, +0.88), but if it continues higher investors will take note. It is election day and finally the ads will be over. Oh, and there will likely be a new majority in the House of Representatives and maybe the Senate. There could be some market ramifications there, but the market has acted as if it won't make a difference. There will be ultimately; the Dems say they will raise taxes as a last choice, but one wonders how many choices are ahead of that 'last' one. Even if they don't, the tax cuts will eventually expire if the change takes place and holds through the next election. Of course the Republicans could have made them permanent; they could have done a lot of things they said they would do but didn't. When push came to shove they had the majority and could have eliminated the senate's procedural rules (they are not in the Constitution) to get legislation they promised to a vote, but when it came to it they had no stomach for it. That as much as anything is why they fell behind.
Regardless, it is interesting to note that congressional leaders, democrat or republican, have an approval rating of 20%. So whoever wins control it is not as if there is any sort of passionate support. Thus high praise indeed to the winners.
Whatever the outcome the market has to remain the focus. There were some solid individual moves Monday as well as some solid moves without volume, similar to the indices. We liked it enough to move into some new positions, particularly with solid leaders rebounding off support. Given the overall problematical volume on the move and the need to still break free of the April high by NASDAQ, we have to keep stops pretty tight and see if this rebound turns stronger. This market has yet to show a serious upheaval on this run and thus we were ready to take more positions, but again, the move still has to prove itself once more given the distribution creeping back into the market.
Support and Resistance
NASDAQ: Closed at 2365.95
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 2348
The 18 day EMA at 2339
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
2300 represents some price support
The 50 day EMA at 2284
2273 is the recent September peak
2250 is the March 2006 closing low.
2234 is the June 2006 peak (intraday)
2235 is the August 2004/April 2005 up trendline
The 200 day SMA at 2231
S&P 500: Closed at 1379.78
Resistance:
1378 is a low from May 2000
1389 is a low from November 1999
1390 is the October high.
1398 is a low from January 2000
1401 is a low from April 2000
Support:
The 10 day EMA at 1372
1371 to 1373 is the December 2000 peak and the January 2001 peak
The 18 day EMA at 1368
1358 to 1362 mark a series of peaks from April 1999 to August 1999 high and the February 2002 low at 1360.
1354 from the early October consolidation
The 50 day EMA at 1344
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 12,105.55
Resistance:
October high is 12,167
Support:
The 10 day EMA at 12,051
The 18 day EMA at 12,011
11,865 from the early October consolidation
The 50 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
11,488 is the early September high.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
November 7
Consumer credit, September (3:00): $5.0B expected, $2.6B prior
November 8
Crude oil inventories (10:30): +1.9M prior
November 9
Export prices, October (8:30): -0.5% prior
Import prices (8:30): 0.1% prior
Initial jobless claims (8:30): 327K prior
Trade balance, September (8:30): -$66.0B expected, -$69.9B prior
Wholesale inventories, September (10:00): 0.6% expected, 1.1% prior
End part 1 of 3
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