|
|
world stock market, us stock market
* * * *
12/20/00 Technical Traders Report
* * *
Technical Traders Subscribers:
TONIGHT:
- Lots of bad news and a major selloff.
- Earnings ahead of estimates? Might as well have missed them as PALM found out.
- Crude oil plummets: no real inventory problem after all and a very weak manufacturing sector.
- Housing starts higher, but not really: multi-family units are not the key
- Tomorrow: we see signs of a reflex rally coming
- Team Trades
The day after the Fed no-action shows action speaks louder than words.
As expected, the selling started at the open. Stocks tried three rally attempts in the first hour and one-half, but those failed. We were looking for a sharp selloff and reversal. We did not, however, see a surge in buying on any of those rally attempts as we waited to see what the market was going to do. Indeed, when we saw the first attempt fail, it gave us an idea that there would have to be some more selling before any reflex rally attempt really took off. As usual, we sat back to watch for the first hour to pass and see what happened. The second rally attempt looked better, but then it started to fail right before the first hour was up, and when it undercut the first test of the open, we were pretty sure any rally would have to come later in the session.
It never really came, though we did make a play or two to the upside on some techs at the end of the day. At the end of the day, the Nasdaq hit a 21-month low (March 1999 levels) and is now 54% off of its high at 5048. The S&P 500 was handed its worst single day loss since October 1999. The Dow took a stand at support, but it was a weak one as it finished on its low. Volumes were astounding. The Nasdaq sold on 2.852 billion shares. NYSE volume was over 1.4 billion shares. Lots of distribution and running to safety.
The market was going to get off to a bad start with a Merrill downgrade of CSCO, IBM and HWP. That was on top of FDRY's warning last night and JBL's earnings miss. The concern is that companies are not going to spend as much on IT next year. CSCO has said it sees robust growth and has always been right, but investors today felt that Merrill knows best. They sold it all today on high volume.
A rate cut would have helped . . .
One has to wonder at the timing of Merrill's release. If the Fed had cut rates, perhaps Merrill would have felt that the inflow of capital into the economy would help stave off the economic troubles ahead. Without the rate cut there won't be anymore money flowing into investment for at least six more weeks if the Fed sticks to its FOMC schedule to address interest rate issues. If this was Merrill's basis for today's announcement, we have to say it was pretty insightful, ignoring the issue of whether they are right or not.
Without a cut, the bias shift did not offer any lifesaver to the market; more like added some concrete blocks on its feet as it plunges to new depths. Words do not equal money. A bias change means nothing as the Fed is not held to its bias. The market knows that bear markets tend to end when rates are actually cut. The reaction today was not even remotely positive.
News tonight did not get much better with more warnings and earnings.
AT&T said it will not make its earnings and will slash its dividend. CNXT warned it will miss estimates. The list goes on. PALM beat estimates and was socked another $7 to the downside on top of the $6 it lost in the regular session. Good news is not salve in this market. On the other hand, MU missed its earnings but was about flat after hours on the news. Maybe after seven days of selling bad news is not having the debilitating impact it did earlier in the week.
Crude oil plummets.
Crude dropped over $2 per barrel today to an 8-month low on news of large inventories. Let's see, about two months ago the television was filled with analysts crying over lack of product and refining capacity. At the time we said it was hogwash; that it was all political. Remember, we went from a world awash in oil and excess inventories that gave OPEC the idea to cut production to try and prop up the price. All of the sudden, there was no oil and there was no refining capacity. Panic ensued and drove prices through the roof. We said it was baloney and would work itself out by Christmas. It looks as if it is going to do just that.
The infuriating thing? We all had to pay billions in higher gas, heating oil, and electric prices. Further? Some regional airlines went bankrupt during the fiasco. You have seen politics at work, not supply and demand.
The sad ironies. The plummet in oil back into the mid-twenties is where it is pretty much stable given the previous world economic picture. Now the world economic picture is much worse and oil prices may drop lower to reflect poor demand. The irony? OPEC did not want oil to rise too far to push the west into recession and thus have the price fall back to the teens or low twenties. The panic certainly did not help world economies. But the real irony is that while OPEC was trying to avoid pushing the west into recession and thus killing demand for its product, it looks as if the west may have done that to itself by missing indicators of a rapid economic slowdown. Did we do it to ourselves and the price of oil was just a bit player?
THE ECONOMY
Housing starts were the news for today. Overall it was up 2.2% to 1.562 million units versus expectations of 1.54 million. On its face, that seems to fly into the face of an economic slowdown theory. That does not, however, take into account that the increase was due to multi-family housing, i.e., apartments. Those are not the types of units that drive the rest of the economy. Single-family homes are the key, and they fell 0.4% from the previous month. Mortgage rates, while continuing to slide, are not leading to more housing starts. Indeed, the National Association of Home Builders expects the market to cool even more despite lower rates as consumer confidence continues to fall. On the bright side, at least there is still construction going on and putting people to work. That helps.
Tomorrow the final GDP revision is out. By this time there should not be any real change. The key will be the fourth quarter GDP that is out shortly after the new year. The bigger report tomorrow will be jobless claims once again. Claims are expected to rise to 340,000 versus last week's 320,000. This is a leading indicator versus the unemployment summary that comes out mid-month. It has been trending sharply higher, and it does have the Fed concerned, just not enough at this point.
THE MARKETS
Ugly got uglier. But, even though the reflex rally we were looking for today did not materialize, we see some good signs it will do so tomorrow. That does not mean that any upside we get is a buy and hold rally. Bear market rallies can be intense, but they usually fail. At this point there is no sign things have turned: no rate cut, slowing earnings, slowing economy, not enough fear. Moreover, we have not had a Nasdaq rally last longer than two consecutive days since September, so any move up is suspect. Even with that, the VIX hit 36.75 on its high, over the level that has started recent rallies, 2300 held today on the test, seven days of brutal selling, and we see many big tech stocks showing doji's on high volume. Signs of a reflex bounce. If we get more selling in the morning, that plays into the hands of an intraday reversal.
Overall market stats:
VIX: 35.78; +4.97. 36.75 on the high. This was the spike that we were looking for that could act as the trigger for the next quasi-rally. These have given us enough to trade.
Put/Call ratio: 0.80; +0.04. A weak rise in the put buying even as two indexes hit 52-week lows. That is not very comforting. We need to see the fear get there for a real chance at a rally back up. That means a move over 1.0 on the close.
Again we feel this is worth repeating: Even if the above indicators give us favorable signals, for a lasting move we need a tangible change in the environment for stocks to build on the sentiment. That would be a powerful hand-in-hand signal, but we have neither right now as far as a lasting move goes.
NASDAQ: Another new intraday and closing low, again on heavy volume. Looking for more selling in the morning and perhaps a reversal and reflex bounce to follow.
Stats: Down 178.93 (-7.1%) to close at 2332.78.
Volume: 2.852 billion shares (+23.25%). 2.146 billion shares to the downside to a very weak 296 million to the upside.
A/D and Hi/Lo: Declining issues led 3.98 to 1. That is dominance. New highs fell to 53 (-31) while new lows exploded to 926 (+446).
The Chart: http://www.investmenthouse.com/ch/nasdaq.html
2300 held today, and we are looking at a possible reflex bounce as the index rose in the last hour off of this level. When an index plows into new 52-week lows, old support levels become less important, but it really looks as if the index is going to try the 2000 level before this thing is over. That does not mean we cannot get a really good 500 point rally in the interim. We had that at the beginning of December, so it can happen even in a full-fledge bear market.
Dow/NYSE: The Dow tossed in its own triple digit loss, but suffered the least of the three major indexes as usual as some Dow stocks, e.g., JNJ, had great days.
Stats: Down 265.44 points (-2.5%) to close at 10,318.93.
Volume: NYSE volume rose again, this time to 1.433 billion shares (+8.25%). Not its worst selling volume in the last month (12-15 was 1.56 billion, and 11-30 showed us 1.51 billion shares to the downside). Down volume was 1.084 billion shares versus 314 million to the upside.
A/D and Hi/Lo: NYSE decliners took back over, 1.91 to 1. New highs fell to 192 (-37) and new lows rose to 203 (+87).
The Chart: http://www.investmenthouse.com/ch/djia.html
The Dow continued its fall from 10,600, finding its low just over the bottom of its last trading range at 10,300. The Dow never really made a rally attempt, closing on its session low. If 10,300 is broken, 10,000 is a quick step down. If we do get a reflex bounce, that should keep it in this trading range for now. If that rally fails, we will be on watch again to see if this level holds.
S&P 500: A record performance by the big caps, giving us their largest selloff since the October 1999 bottom. We were worried about the 1270 level, and in one day it breached that level. Without hopes of improvement in the economy, where the bottom is on this index is hard to pick. 1270 was almost the unthinkable low, but now it is there. Still may get a reflex bounce if the Nasdaq moves up, but there looks to be even more downside after that.
Stats: Down 40.86 points (-3.1%) to close at 1264.74.
Volume: NYSE volume grew 8.25% to 1.433 billion shares. Very heavy selling.
The Chart: http://www.investmenthouse.com/ch/sp500.html
TOMORROW
The reflex rally did not pan out today, and instead the defensive issues proved to be the best place to park money again. Some are acting downright like growth stocks with the moves they show. Not the $20 gains we see when the volatile techs run, but very solid moves.
As noted earlier, we see some better signs of a reflex move up, a.k.a., a bear market rally. These can be strong as we saw in the first week of December. We just have to get the heck out when they start to fail as they have all done since March. Until there are changed circumstances, we will play the bounces but be ready to bail. We are not trying to hit the home run. We are trying to take a few points here and a few there. The key is not to let positions get away from you. Hit a lot of singles. They add up.
What we see: VIX shot up today to the level that has led to recent bounces; big techs on doji's; seven days of harsh selling; CNBC commentators act as if the Grinch actually stole Christmas (Greenspan . . . Grinch. Makes you think); MU missed estimates and really did not budge; Nasdaq futures are not tanking on the bad news after hours. That does not mean everything is fine. PALM beat estimates and got slammed even harder after hours. So, we may see more selling in the morning and then a turn back up.
It is always hard to pull the trigger after such selling. Today looked as if it was going to rally, but it did not. In the last hour, however, the index did test 2300 and started back up. That may not seem like much, but it was something we were looking for and it gave us the confidence to make a couple of trades as some of the big techs we were watching turned back up off of their lows as the Nasdaq turned up off of the test of 2300. We did not hang around; we took the gain and left before nightfall as is our plan right now. Tomorrow we are going to watch for selling in the morning to test 2300 or slightly below (2280 to 2290) and then a turn back up. On that move we are looking at some of the stocks that were showing us the doji's today: JNPR, SEBL, BRCM, and NEWP. We will move in with stock and/or options and hit a few singles, and if the stocks or market starts to sell back, we will get out. We want to let them run if they will, but the last thing we want is to get turned over in a position if we get a good gain going.
We will also continue to look at those sectors that have been paying us well of late: drugs, healthcare, food, suds, REIT's, some financial. When the techs were rallying, it was hard to beat a good sector and a good pattern. We have advancing sectors and good patterns in the defensive stocks. No 30 point moves in a day, but no $30 losses in a day either.
Support and Resistance Levels
Nasdaq:
Resistance: 2750 represents some resistance. The down trendline is around 28500 at this point.
Support: 2500 is gone. Now we look to 2200 down to 2000.
S&P 500:
Resistance: 1335 is acting as some resistance. 1370 is the down trendline.
Support: 1270 and 1280 are gone. It is wait and see for this index.
Dow:
Resistance: 10,800 to 10,900.
Support: 10,300 is trying to hold. After that, 10,000.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
12-19-00
Trade balance for October (8:30): -$33.2 billion versus -$34.3 billion prior
FOMC results (2:15)
12-20-00
Building permits for November (8:30): 1.537 million prior
Housing starts for November (8:30): 1.540 million versus 1.532 million
Treasury budget for November (2:00): -$23.7 billion versus -$27.0 billion
12-21-00
Third quarter GDP final revision (8:30): 2.4% versus 2.4%
Third quarter GDP deflator (8:30): 1.9% versus 1.9%
Initial jobless claims (10:00): 340,000 expected versus 320,000 prior
Philadelphia Fed survey (10:00): 4.0% versus 5.2% prior
12-22-00
Durable goods orders for November (8:30): 1.3% versus -5.5% prior
Personal income for November (8:30): 0.4% versus -0.2% prior
Personal Consumption Expenditures (8:30): 0.3% versus 0.2% prior.
TEAM TRADES
We were looking for the reflex bounce today, but early on we saw the attempted rallies fail. We were tempted when the Nasdaq turned up after making a higher low after about 35 minutes of trading, but we held off to see what the first hour would bring. When it crashed lower, we had to wait for upside plays as we looked for some downside puts.
We were looking at BRCD as a put when the Nasdaq started to roll back over at about 9:30, but the stock fell hard, and the limit order we entered for some $155 options was not filled. The stock fell $13 over the next 25 minutes, and by the time we confirmed the fill was not made, we really did not want to chase it lower. It bounced up but then eventually found its way all the way down to 138. Would have been a good play.
At 138 BRCD bounced sharply. It was up $4 in 5 minutes to 142. The Nasdaq had tapped 2380 again and was moving up. We took a chance with some shares. The stock was trading all over the map from 141 by 142 to 141.94 by 142; the only constant was 142. We put in a limit at 142 and the fill was almost immediate. Over the next 20 minutes the stock ran to 148. It was there for just a few trades and then started back down. Watching the Nasdaq, we tried to lock profit in, but our order was not properly placed (our mistake) as we put in the limit price incorrectly. The stock sold back to 141 and we were contemplating getting out, fearing we missed our run. We decided to put a stop order in at 137.50, just below the day low, just in case. The stock then build somewhat of an ascending wedge pattern, and we were comfortable (somewhat) letting the pattern build. It hit 147 several times around 1:30 to 2:10 CT, and then broke higher at 2:30 CT. It raced to 153 and we were feeling great. We were worried about late selling and we did not intend to hang onto the position; we were going for singles, not home runs. We slipped a stop limit in at 150 just to be safe. Sure enough it started to turn back, and we were trying to modify the order to 151 to catch an extra buck. Before we could do it, the order was triggered and we were out. No harm. That is what the order was there for, even though the stock bounced back up again before selling back to 147 on the close. Again, this was the kind of 'single' we were looking for. We considered options and wish we had played them as the return would have been very nice. Still, no complaints.
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
THE PLAYS:
All prices reflect prices at the close on Wednesday.
Best Plays, Part 1:
1) RKY: Wants to move up on this hold above support.
2) GPT: Breaking out and still a buy.
BREAKOUTS:
Continued Play (from the TTR update, 12-14):
RKY (Adolph Coors Co--$77.50; -1.31; optionable (RKY)): Food & Beverage
http://biz.yahoo.com/p/r/rky.html
STATUS: Pulled back further after the Friday breakout, tapping support at the 10 day MVA on the low of 76.63 and remaining above the buy point of 77.19. Volume was stronger at 611,700 (avg. 367,000); look for a move up from here on the volume momentum, watching for resistance at the previous high of 79.50. Strong money flow and high relative strength.
BUY POINT: On a move back up after a pullback to the 77 range.
POSITION: Stock and/or January $75 calls to buy (RKY AO). The April and January $80) options had insufficient open interests (too illiquid for this stock).
Continued Play:
GPT (Greenpoint Financial--$37.25; +2.31; optionable (GPT)): Banking
http://biz.yahoo.com/p/g/gpt.html
STATUS: Pulled back Tuesday but bounced back next session on excellent volume (1.4 million; avg .362,000). The stock is breaking out of the base as expected, beating the previous basing high of 36.25. Remains a buy on this move. Relative strength broke out along with money flow as buying surged.
BUY POINT: Up to 38.20 on the breakout, as volume remains strong.
POSITION: Stock and/or April $35 calls to buy (GPT DG).
End Part 1 of 2
|
world stock market
us stock market
|
