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us stock market, trade stock
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11/20/06 Technical Traders Report
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Technical Traders Report Subscribers:
***Holiday Week Schedule****
Market closed Thursday, open one-half day Friday.
Normal report schedule Monday and Tuesday
Wednesday: Market summary, continuing play tables, note plays ready to move.
Regular schedule resumes Monday.
Alerts issues as usual during market hours.
MARKET ALERTS
Target hit alerts: None issued
Buy alerts: BRCM; CMG; LRCX; SMSC
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:
- Stocks start holiday week mixed but money moves to semiconductors and other growth areas.
- Leading indicators for October grow in line, but September is revised much stronger.
- Good start, looking for more money into the growth areas as the week continues.
Leaders start holiday week as expected, rallying with money moving in.
There were mergers aplenty Monday, e.g. FCX/PCU, but that was not enough to offset a weaker Asia and Europe and earnings from LOW that were solid but fell short with guidance. As noted in the weekend report, we anticipated a bit more weakness as the week started, followed by a holiday rebound, and the weaker start helped put the pieces into place.
Shortly after the open stocks such as BRCM and LRCX had enough of the pullback. After a nice test to end last week and a modest dip early, they turned and started higher. They did not bring the entire market with them, however, as the NYSE large caps lagged while money was pretty specific in seeking out growth areas. NASDAQ, SP600, and particularly SOX received the lion's share of the attention and they also moved up on stronger volume.
In short, it was not a catch up session where money was again chasing performance in DJ30 and SP500; those indices were lower. Money was moving in earnest, i.e. on high volume, into growth areas expected to perform well in the months ahead. Sure some of it was a bit of catch up as these indices broke out last week and the pullback gave buyers a good opportunity to get in. These indices were not leaders, however, until recently. This was more of the same seen before when these stocks were under accumulation: longer term buying from institutions looking for these stocks to lead into the future.
Technically it was not a great session across the market. Volume was lower, breadth was weak and not much headway was made in advancing the breakouts after the pullback. The key, as noted above, was money rotating into growth areas, and as we have noted the past couple of weeks, that is a sign of market health. Thus even though there was not a mountain of strength across the market, money was moving to areas that have set up to lead, and that bodes well for the future as well as this week.
THE ECONOMY
Leading economic indicators trying to scratch a comeback.
The Conference Board's reading of the US' economic future grew an in-line 2% for October, but the bigger news was September's upward revision from 0.1% to 0.4%. That is a nice revision indeed, but it is hardly happy days as the LEI has struggled for the past year with fits and sputters. It is the first back to back gains, however, in 9 months, and with ECRI's more accurate leading indicators firming up, it is at least an indication that the ducks are starting to line up for a better than expected economy in 2007.
That in itself is ironic, because if you turn on the financial stations you see almost as many claiming the economy is heading into recession in 2007. Frankly, it is not that easy of an argument to dismiss given the 19 basis point inversion in the bond yield curve, an inversion that was holding at roughly 5 basis points before the unsettling expansion the past three weeks. With the yield curve inverted for several months and now the inversion growing, it is hard to shove aside history and say this time it is different.
At the same time you see money moving into growth areas of the stock market, and as we know the stock market is also a good economic indicator, particularly when growth areas that have lagged for months put together good bases and then break higher, pushed by strong volume. After the bond market and stock market tried to line up a month ago, they are back to working in apparent opposition with respect to the economic future.
We are not smarter than the markets; you never are. When you think you are you learn once again you are not as you get a spanking. We do know bullishness is high, at least among advisors, the bond curve is inverted, and that growth areas in equities are getting some big money pushed their way. We have to take what the market is giving at any particular point in time, and right now we are seeing money moving into growth areas we looked at over the weekend. Thus we are buying into those moves, but at the same time, with these contrary indicators out there, we have to watch the price/volume action and leadership as the market moves forward. If they start to break down we have to be ready to protect ourselves and see how the divergences play out. For now we like the improvement in the ECRI indicators as well as the action in leaders and in price/volume.
THE MARKET
MARKET SENTIMENT
VIX: 9.97; -0.08
VXN: 15.13; -0.2
VXO: 9.57; -0.27
Put/Call Ratio (CBOE): 0.87; +0.06
Bulls versus Bears: Bulls have moved above the key 55% but this is not the best timing indicator. It is a warning to watch for distribution, failing leadership and the like.
Bulls: 56.4%. Bullish advisors have finally topped 55%, the level where the yee ha view of the market is overdone and some corrective activity can enter. A sharp jump from 52.1% the week before and closing in on the January peak at just above 60%.
Bears: 22.3%. Sharp drop from 26.0% and flirting with the 20% level considered bearish. Well off the 37.1% hit in July (the highest level in this entire cycle). 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: +6.86 points (+0.28%) to close at 2452.72
Volume: 1.763B (-2.26%). Most technology did not receive more volume as trade fell well below average. Thus it was no accumulation session, but we did see key areas get plenty of volume, and those (e.g. SOX) are areas we anticipated would provide the leadership. Their stronger moves is a positive for NASDAQ as it moves ahead.
Up Volume: 1.16B (+461M)
Down Volume: 572M (-406M)
A/D and Hi/Lo: Advancers led 1.01 to 1. Flat line, matching the overall session.
Previous Session: Decliners led 1.37 to 1
New Highs: 196 (+50)
New Lows: 42 (0)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ scratched out a modest gain, finishing about as far off its high as what it gained. Volume was lower, breadth was flat. Basically not much headway overall, but as noted, there were pockets of key strength that started higher or showed increased volume as they held steady, crouching for the breakout. With that kind of leadership we don't view this as a weak session.
SOX (+1.75%) broke higher from its short three-day handle after it blasted through the 200 day SMA (469.51) last Tuesday. A strong move through that resistance, an excellent handle in place, and then a continued surge higher on Monday. Excellent action as this key growth sector is grabbing the lead after the last consolidation.
SP500/NYSE
Stats: -0.7 points (-0.05%) to close at 1400.5
NYSE Volume: 1.52B (-11.21%). Volume fell below average for the first time in 5 sessions as the NYSE indices basically held flat. No accumulation, no distribution, just a pause on lower volume as they move laterally. That is a rest stop.
A/D and Hi/Lo: Advancers led 1.05 to 1. Flat as with NASDAQ even with the small caps posting a modest gain.
Previous Session: Decliners led 1.11 to 1
New Highs: 307 (+140). Excellent increase in new highs as the small caps helped NYSE out quite a bit.
New Lows: 18 (+1)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 closed flat on lower, below average volume, showing a doji on the candlestick chart. SP500 has moved laterally for the past two sessions after a surge early last week that rescued it from a short-term toppy pattern. A good, quiet lateral consolidation, refusing to give back any gains. It is holding on as it consolidates, and that is what we want it to do as the growth sectors take more control.
SP600 (+0.25%) was one of the leaders on Monday, just as it has emerged as a leader the past week with its breakout from a nicely formed base. Sure it was no major surge Monday, just a modest recovery from the Thursday and Friday pullback to test near support at the 10 day EMA (397). Nice test and showing some upside bias Monday. Looking ready to continue higher.
DJ30
The blue chips lagged, but with a 0.21% loss it was not a major decline and indeed just the first in 6 sessions. Heaven forbid the Dow did not set a new record for a session. Of course, BA and MO took a day off after big moves last week that pushed the index higher. Basically there was nothing nefarious about the session as it eased back on lower, below average volume, still well above near support at the 10 day EMA (12,226).
Stats: -26.02 points (-0.21%) to close at 12316.54
Volume: 228M shares Monday versus 285M shares Friday. A return to low volume after a series of higher, above average volume gains. Good price/volume action.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
No economic data is scheduled, but the Fed-speak has been high; apparently the Fed does not take the holiday week off though everyone wishes it would. Other than the Fed's continued fear of inflation even though leading indicators say the cycle has peaked, oil remains lower, earnings came and went without major offense, and it is a holiday week that typically shows gains. Moreover, the market continues to show good price/volume action and leadership with new leaders coming from key economically sensitive areas. It is hard to argue with those, and in the near term we are not going to. Indeed Monday we were buying into these leaders as the moved higher, showing nice price gains on good volume to boot.
Tuesday we are going to look at doing the same thing. This week tends to be a good one and we are seeing strong volume in the leaders, something you don't typically see during this week. We are taking that as a solid positive for the market on into the year end. Certainly volume will fade as we head closer to Thursday, but this shot of trade in these leaders will keep us looking their way on Tuesday. If we get another solid advance heading into Thursday we will also look at taking some interim gain on positions that have put in some good moves over the past week; never hurts to bank some gain and keep your mindset positive with any particular position. It is always easier to read a play when you have banked a nice profit.
We will look for this move to spread out a bit more Tuesday as there are still many stocks from the growth sectors that remain set up to move higher. The Monday buying was definitely in the leaders as the overall market was mixed. As the move spreads out we will be moving into these new areas just as we did Monday. We will eat turkey on Thursday, but ahead of that we will jump into these leaders as they show solid moves as it looks like some big money is moving into the growth areas under the cover of the holiday week.
Support and Resistance
NASDAQ: Closed at 2452.72
Resistance:
2477 from January 1999
2493 is an interim peak from February 1999
Support:
2412 from June 1999 low
The 10 day EMA at 2420
The 18 day EMA at 2396
2384 is an interim peak from January 1999
2379 is the October high.
2376 is the April high, the former post-2002 high
2368 is the early October handle high.
2333 is the top of the Q1 2006 trading range (the January and mid-March 2006 highs)
The 50 day EMA at 2328
2316 from interim tops in January and March 2006 trading range
2300 represents some price support
S&P 500: Closed at 1400.50
Resistance:
1401 is a low from April 2000
1410 is an interim high from March 2000
1420 is a July 2000 low
1425 is an interim high from November 1999
1444 from February 2000
1475 from peaks in December 1999 and January 2000
Support:
The 10 day EMA at 1391
1390 is the October high.
1389 is a low from November 1999
The 18 day EMA at 1385
1378 is a low from May 2000
1371 to 1373 is the December 2000 peak and the January 2001 peak
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 1360
1354 from the early October consolidation
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 12,316.54
Resistance:
8.8% above its 200 day SMA. Struggled since it hit near 8% above that level previously in late October before this last break higher. Tends to start about 10%, so this is a bit early but it has been a long run.
Support:
The 10 day EMA at 12,226
October high is 12,167
The 18 day EMA at 12,161
11,986 is price support from mid-October and the early November low.
The 50 day EMA at 11,913
11,865 from the early October consolidation
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 20
Leading economic indicators, October (10:00): 0.2% actual versus 0.2% expected, 0.4% prior (revised from 0.1%).
November 22
Initial jobless claims (8:30): 310K expected versus 308K prior
Michigan Sentiment, revised November (10:00): 93.0 expected, 92.3 prior
Crude oil inventories (10:30): +1.283M prior
End part 1 of 3
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