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Begin Part 2 of 2
THE MARKET
The market did what we felt it had to do, i.e., pullback some more on light volume. Indeed, the action was very contained. There was some wild action in individual stocks that received bad news, but as noted above, several of those mounted impressive recoveries. Looking through the headlines, there was really plenty bullish signals to see if you were watching.
Don't tell that to many of the market watchers. On each down session you hear some panning of the market as being overbought, in a fool's rally, etc. We also heard comments that the volatility indicators were too low as well. As we said before, we like this voice of concern as it continues to show that despite the low volatility figures out there a core of skeptics remain. As I write this there is a roundtable discussion on a financial show that is discussing how investors are gun-shy and the market will take a long time to heal. Skeptics. That is good. Don't curse them; embrace the ones that are still out there. Encourage them. Take them to dinner with some of the money you are making in the market while they wring their hands.
Now with that buildup, the market will probably tank. Seriously, things look to be building up as they should, but we have to let the stocks and the indexes make the moves we are looking for, then get in.
Secondary indicators: Volatility and the put/call ratio are sentiment indicators. They are thus contrary indicators (typically moving inversely with the market) and are most useful at extreme levels. They take a back seat to price and volume, but they can give us a heads up or a caution flag so to speak ahead of time. That is why we keep an eye on them.
VIX: 22.50; +0.33. Slight rise but still down at the summertime range. Many are pointing to that but again, price and volume trump, and they look good for now.
VXN: 47.41; -0.48. Fell slightly on the slight gain in the Nasdaq (BRCM was up). Again, this is at a low range, clipping the summer 2001 consolidation level (47.50) and well above the June low at 43.96.
Put/Call Ratio (CBOE): 0.64; -0.06. The ratio dropped somewhat, but still remains in a solid bullish range as it has done more or less since the September bottom.
Nasdaq
Posted a modest gain on light volume. Held where it needed to, and now we will see if it is ready to move higher. It appears to be ready to do so.
Stats: +18.64 points (+0.9%) to close at 2055.74.
Volume: 1.873 billion shares (-11.5%). Volume peeled back to average on the session. Though it was a positive close, we still view today as a building session and the volume was just fine.
Up volume: 1.124 billion
Down volume: 730 million
A/D and Hi/Lo: Advancers took back the lead 1.24 to 1 (decliners led 1.21 to 1 Monday).
New highs: 133 (-15)
New lows: 17 (+3)
The Chart: http://www.investmenthouse.com/cd/$compq.html
Moved back over the December closing high (2054.27) on the close after testing 2027.34 on the low. That is about where we wanted it to hold: above 2000 and the down trendline at 2010 on the low. It has set up well to make another run at the up trendline (now at 2105). There is always the danger of some bad news hitting that turns this into a double top that we lament at some point in the future, but the news is decent, the price/volume action is good, and the market seems intent on stretching this last move higher a bit more.
Dow/NYSE
The Dow pulled back on lighter volume, holding at the December closing highs and moving up to close from there. It is holding the breakout and looks as if it is ready to move higher. Note that the advancing issues moved ahead on a decline in the Dow and S&P. That is bullish action.
Stats: -46.50 points (0.5%) to close at 10,150.55.
NYSE Volume: 1.228 billion shares (-6.75%). Volume eased again on the selling, just as we would want it.
Up volume: 441 million
Down volume: 792 million.
A/D and Hi/Lo: Advancers led 1.07 to 1 (decliners lead 1.15 to 1 Monday) on a down day. Very positive action.
New highs: 98 (-26)
New lows: 18 (-5)
The Chart: http://www.investmenthouse.com/cd/$indu.html
The Dow pulled back for a second consolidation session on lower volume. It tapped at the 10 day MVA on the low (10121.35) and then rallied to close above the December closing highs (10,136.99). This keeps it above the December ascending wedge with a picture perfect pullback thus far. It is acting as it should, and we are looking for another move up from this level.
S&P 500: The big caps have fallen below the 200 day MVA, but they are doing so on lower volume after breaking that level on higher volume. On the low they held just where we were looking (1157) and moved up a bit to close. On the high it tapped the 200 day MVA (1166.73). It could be ready to make a run from this level though it may try to test the 10 day MVA (1158.18) or the 18 day MVA (1153.00) again before it does so.
Stats: -4.18 points (-0.4%) to close at 1160.71.
Volume: NYSE volume slid back perfectly once again, falling to 1.228 billion shares (-6.75%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
No scheduled economic news tomorrow, and we may not hear much from the Fed given that four of the brethren spoke today about the 'mixed' signals the economy was showing. The good to take out of that: the Fed most likely won't start ratcheting up rates at the first signs of a recovering labor market, but will wait until things are roaring so when Greenspan announces his retirement later in the year or early next year he can leave with the illusion that he once again saved the economy.
Cisco could be a damper early, but it was not weighing things down in the after hours. Analysts could work over the story in the morning and put some more negative bias on the market, but we do not think it is going to stop what appears to be inevitable: the market looks ready to move up from here. As we noted last week, there are times that the market wants to put its head down and rally. We think we are about to see another one of those episodes and we want to catch the wave up with some SOX calls and other great stocks making great breakout moves.
We have set out the argument for the upside move. We like what we see. We still, however, have to let the move start. We are putting aggressive buy points on some plays where applicable for those who like getting in a bit earlier and are able to move quickly on their feet if the move fails at resistance. The aggressive buy points are marked as such. The other buy points are where the stock or index clears some resistance (former highs, trendlines, etc.) and have some room to run. As we have all seen, stocks and indexes can set up beautifully, and then fizzle. That is why we put buy points over resistance; that gives them the ability to make much better moves with less chance of caving back on us.
We would love to see tomorrow open softer, retest today's lows, and then start back up and start taking out the next levels. That would show us that the indexes have shaken out the sellers and are ready to move higher. We want to get in on that move.
Support and Resistance
Nasdaq: Closed at 2055.74.
Resistance: The December intraday highs still stands in the way (2065.69). After that the up trendline not at 2105. Then 2250 to 2300. There is not a lot of specific resistance. If the Nasdaq can get the trigger, it can run quite a ways.
Support: Again, the 2040 level is a potential support area and it held on the close but not intraday. Still, the index held above the down trendline (2005) and the 2000 level. The 18 day MVA (1993.45) is moving up to support 2000. After that 1934 to 1941 (tops of prior consolidation) have been the best support since the early December gap higher.
S&P 500: Closed at 1160.71.
Resistance: The 200 day MVA at 1166.73. The December high at 1173.62. Then the hump in the March double bottom at 1183.35.
Support: The 10 day MVA (1158.17) held intraday today. Behind that is the 1150 level (not the best level) that is now backed up by the 18 day MVA (1153.00). The 50 day MVA (1138.24) is moving up to squeeze the index between the 200 day MVA. It is backed up by price consolidations at 1125. After that, 1100 is next (top of the October consolidation range).
Dow: Closed at 10,150.55.
Resistance: 10,280 to 10,300 has been tapped Friday and Monday on the high, and that is the level to clear. The entire 10,200 to 10,500 is the trading range from June to August 2001 and represents resistance. The down trendline from January 2000, the all-time high, is moving right at 10,500. The up trendline is at 10,430.
Support: The intraday December highs did not hold, but the closing high at 10,136.99, the top of the ascending wedge, did hold. Below that the 200 day MVA (10,095.04). Below that, 9992 has acted before as support, but it is weaker.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
1-8-02
Factory Orders, November (10:00): -3.3% actual versus -2.6% expected and 7.0% prior (revised from 7.1%).
Consumer Credit, November (3:00): $19.9B actual versus $4.7B expected and $11.2B prior (revised from $7.0B).
1-10-02
Export Prices ex-ag.; December (8:30): -0.4% versus -0.4% prior.
Import Prices ex-oil; December (8:30): -0.6% versus -0.6% prior.
Initial Claims; 1-5-02 (8:30): 447K versus 447K prior.
Wholesale Inventories; November (10:00): -0.3% versus -1.0% prior.
1-11-02
PPI; December (8:30): -0.2% versus -0.6% prior.
Core PPI; December (8:30): 0.1% versus 0.2% prior.
TEAM TRADES
PVSW hit our buy point for a breakout (3.46) from its saucer with handle at 8:55. It quickly moved up to 3.49 on volume of 59,000 (that is average volume- - massive for this time of day); previous day's total volume was 99,200. PVSW topped right away at 3.50, pulling back to 3.49 but volume was continuing to ramp up (66,000 by 9:00). It was bidding 3.45 by 3.50 and we put in a limit order at 3.50, but we were late in putting it in and the ask had already moved. Well, the stock zoomed up to 3.80 (oh, great). However, just after 9:30 it started falling back, and this time it dropped down to 3.50, and held above the pivot point. If there was a place to get in after missing the first chance, it was here. An order for stock was put in at 3.60 and the fill came just after 10:00. Volume had tapered off quite a bit, and remained low over the next hour as the stock formed an intraday ascending wedge. That was cool, and sure enough, just after noon (CT) it blasted off again, and hit a high of 4.05. By the end of the day PVSW was at 3.85. In retrospect it would have been nice to get in early, right when the alert came through, and if we had simply looked at the bid before it was sent (not using a full service broker cost us another way today) we would have gotten in at a bit better price. Still, it was a very nice breakout on massive volume.
For a review of frequently asked questions, please use the link below:
http://www.investmenthouse.com/1questions.htm
Investment House subscribers are offered a special from eSignal for those interested in a realtime service. Contact:
Ray Fitzgerald
Account Executive
800-322-0940
Office hours 6:30-3:30 PST
rfitzgerald@esignal.com
Good Investing!
Jon L. Johnson and the Technical Traders Team
All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Online Investment Services, LP or its paid consultants and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. We are not licensed or registered in the securities industry. The information presented herein and on our related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolio of Partners of Online Investment Services, LP or its paid consultants may, in some instances, include securities mentioned herein and on our web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors.
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