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us stock market, trend trading stock
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1/16/07 Technical Traders Report Update
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Technical Traders Report Subscribers:
Full report issues Wednesday.
MARKET ALERTS
Target hit alerts: SMG (took the money off the table)
Buy alerts: NTGR; NYX; VCLK
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 struggle to a mixed close as techs fight warnings, downgrades, and post-breakout blues.
- New York PMI splashes some cold water on stocks
- Initial step into earnings season is shaky, to test NASDAQ breakout.
Monday blues leave market mixed with techs showing the most hesitation.
After the tech gains last week the market was prone to some selling, and there was plenty of news to give investors pause on Tuesday. Futures were looking pretty decent up to 7:30ET, but the New York PMI (Empire State Index) came in at 9.13, well below expectations at 20. The futures hiccupped but started to recover. Then SYMC warned (security software) while CSCO, KLAC and NVLS struggled under the infamous 'valuation' downgrades. When a stock has a good run, even though it is showing strong buying and continued strength some analysts will downgrade a stock because its PE ratio is too high to suit them. Or they like the stock and want it lower so they can put their clients in it. In any event these added to the pressure and good earnings from WFC and AMTD could not offset the dour tone this news set.
Even with this downbeat news NASDAQ opened then moved into positive territory, fighting to advance for the first half hour. That move ultimately failed and started a session of struggle and strife. That is a bit melodramatic. Stocks struggled all session and NASDAQ trended lower all session, failing two rebound attempts. The losses, however, were basically negligible overall. DJ30 and SP500 closed positive while NASDAQ and SP600 posted modest losses. SOX was the hardest hit (-1.24%), but that is often the case with any selling, and given the downgrades it actually held up quite well. Indeed, that was pretty much the story across the market though as usual there were individual issues scattered about.
Technically there was mixed action with the large cap NYSE up and NASDAQ down, but leadership was mixed as well as many of last weeks leaders took some time off after solid gains. Thus breadth was lower, but nothing negative. Basically NASDAQ stalled a bit after last week's breakouts and right ahead of the earnings flood. There was higher volume on NASDAQ, indicating some churning as sellers moved in and matched buyers blow for blow. After the run higher and breakout move, however, that is not unusual. Indeed, the volume was less than the strong upside volume leading up to and including the breakout. Thus we are not too uptight about the higher volume Tuesday, particularly given that Friday was a pre-holiday session where volume is typically lighter. NYSE volume was lower as those stocks edged higher indicating more of a pause than anything else.
After hours INTC announced earnings and they beat on both earnings and revenues, moving the revenue guidance higher. Gross margins were lower at 4.96% versus the 50% to 51% analysts hoped for, and that was the stock's Achilles heel, gigging it after hours for about a point to the downside. Don't want to see this act as a downside catalyst for NASDAQ; some chip stocks were doing better after hours though most were where the closed, i.e. down for the session.
Ins sum there was no real damage done during the session, just a sluggish day after a solid run higher last week. The real test now comes because earnings are starting to fly and the market moved higher ahead of them. Thus Tuesday's pause was not a bad thing given the action to this point, and we are likely to see some more pressure on Wednesday based on the early read's of Intel's results. As long as that stays in control, however, i.e. no surging downside volume and breakout reversals, a rest is a good thing, setting the stage for the next move. NASDAQ has a fresh breakout and you have to treat them with care. No harsh reversals, no breakdowns after breakouts, no kidney jarring jolts through support.
THE ECONOMY
New York manufacturing blows cold in January after a hot December.
It is the first read of business sentiment in 2007 as the northeast tells us all just how it feels about business prospects for the month and down the road. After great rebound in December to 22.2 (revised down from 23.1) manufacturing activity cooled off to just 9.13. That beats falling below zero and thus showing contraction.
Of course not many were ready to view it that way. Indeed we were somewhat surprised that the market reacted to this particular report as much as it did Tuesday morning. Goes to show that some were looking for an excuse to pull the trigger after last week's good runs. Again, even with that, stocks held up rather well given the headwinds on the session.
Perhaps that is because the New York index, similar to Philly, is about as wild as the March wind. That is why the reaction was a bit overblown in our view; at times it moves significantly out of step with the other indices. Again, some were looking for a reason to sell some after a strong week higher. Certainly much more important data is to come, at least regarding the Fed, in the form of PPI and CPI. And of course the overlay to all is earnings that are starting to come in. The reaction to the Empire survey basically says to us there is some nervousness ahead of earnings, particularly after a move higher leading into the season. Nothing new or different about that. Thus the Empire survey was a mere pawn used by those ready to sell.
THE MARKET
MARKET SENTIMENT
VIX: 10.74; +0.59
VXN: 17.28; +0.72
VXO: 10.47; +0.23
Put/Call Ratio (CBOE): 0.91; +0.16. Quite a bump in the ratio with a day that was not terribly negative.
Bulls versus Bears: Bulls are still easing back but still remain above the key 55% level. Bears continued their decline, and this time they broke below the 20% level and that is considered bearish. If you get too many bulls and too few bears, there is no ammunition on the sidelines to keep shooting the market higher.
Bulls: 55.4%. Bulls ticked modestly higher from 55.3% after declining the past several weeks from 59.6% (down from 56.5%, 58.8% and 59.6% at the high on this last spike). Still above the 55% level for over two months. Came within a whisker of the January 2006 peak at just above 60%.
Bears: 20.7%. Bears faded, mirroring somewhat the move in bulls. Down from 21.3% after jumping back above the 20% level for a week. That level is considered bearish. Still struggling to trend higher after a steady slide (20.6%, 21.3%, 23.9%) from the 37.1% hit in July (the highest level in this entire cycle), now so far in the distance you can barely see it. 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: -5.04 points (-0.2%) to close at 2497.78
Volume: 2.245B (+4.54%). Volume edged higher above the Friday lower volume session. Still technically distribution on the session as NASDAQ gapped higher and turned back for a loss. Some investors were unloading tech stocks that were just bought last week.
Up Volume: 987.549M (-495.006M)
Down Volume: 1.108B (+460.332M)
A/D and Hi/Lo: Decliners led 1.15 to 1. Not bad, basically flat and matching the session.
Previous Session: Advancers led 1.66 to 1
New Highs: 152 (+48)
New Lows: 15 (+10)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ gapped higher but that move was over in the first half hour as NASDAQ turned back over and closed modestly lower. Volume was above average and higher than Friday, so there was some distribution, indicating some investors wanted out of technology ahead of full frontal earnings season. NASDAQ was up over 85 points this month, and with the breakout last week it needed a break. Sure volume was more than we wanted as it paused, but losses were contained. It will have a test ahead of it Wednesday after the INTC earnings, but again, it can still be down and still be in a nice test of the breakout.
SOX (-1.24%) sold the hardest but it tapped the 18 day EMA and closed at the 10 day EMA. This still, despite the loss, keeps it in its nice building pattern, and a hold here sets a higher low. INTC will push it lower Wednesday for sure to start the session, but then we see if it comes off the 50 day EMA (471.46) making that higher low. That would be a real show of strength and the kind of support NASDAQ needs.
SP500/NYSE
Stats: +1.17 points (+0.08%) to close at 1431.9
NYSE Volume: 1.506B (-1.35%). Volume faded as SP500 basically traded flat. Good; no churn just over the December high. Don't want to see investors unloading their large caps here while NASDAQ deals with some issues following its breakout.
Up Volume: 719.528M (-330.318M)
Down Volume: 763.238M (+305.762M)
A/D and Hi/Lo: Decliners led 1 to 1. Flat, matching the action. Nothing out of whack indicating more weakness than the numbers indicate.
Previous Session: Advancers led 1.97 to 1
New Highs: 247 (+74)
New Lows: 7 (+3)
http://investmenthouse.com/cd/^gspc.html
SP500 closed at a new post-2002 high though it was by the narrowest of margins. The large caps continued the move last Friday you could say, but there was no renewed buying, just coasting higher on lower volume because no one was selling. It rode NASDAQ's coattails higher and to its credit it did not fade as soon as NASDAQ encountered some issues. Other than that it is likely to pause a bit here as NASDAQ attempts to work out its breakout and early earnings results.
SP600 (-0.29%) rallied further intraday but it stalled out at the November highs and faded to close modestly lower. It improved its standing last week, recovering off the 90 day MA. It certainly looks as if it is going to fade and try to make a higher low in the handle and thus give it a better point at which to turn back up and make a serious run at the breakout.
DJ30
DJ30 rallied to another new closing high once again, riding the momentum from last week when it broke to a new high on rising, above average volume very similar to NASDAQ and the tech move. Volume was lower Tuesday but still above average. It remains extended, but thus far it has not found the end of the road.
Stats: +26.51 points (+0.21%) to close at 12582.59
Volume: 242M shares Tuesday versus 256M shares Friday. Lower trade but still above average following the above average volume as DJ30 moved to its new high.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Heavy on the economic data (PPI, production & capacity, oil inventory, Beige book) and the earnings results as well. Wednesday really gets 2007 going with information overload. NASDAQ was unable to push higher Tuesday, and from late trade indications it will face losses early Wednesday. Looks very much as if the breakout test is going to come without generating any more upside. Beyond the immediate term that is not bad; as we see all the time, breakouts are tested and then resume after the initial profit taking subsides. Mixed in with this pause are earnings results that are not quite pleasing to investors that bought into stocks on the breakout. They were selling some (though modestly) Tuesday, and they will be selling some on the open Wednesday unless there is some major spin prior to the open.
That leaves us looking at the test for opportunity to pick up some strong stocks that make orderly tests of their moves or those that we noted over the weekend that ran ahead of the market and are already making their tests. Those latter stocks will likely be the ones that turn back up first given they are already giving back some and are in position to move higher once the initial selling pressure subsides.
For current positions that come under some pressure in this pullback we are watching for them to hold support levels on the close. While a reversal can always come in and turn a breakout into a breakdown, last week was a very strong upside breakout and thus typically there is a test as opposed to a reversal. If all or most of the reasons for the rally turn out false then you can get a reversal. Intel has disappointed with its margins as it cuts prices (as everyone pretty much knew it was doing), but it has done this before and the market has survived. INTC still has that upside gap to fill and that may prove irresistible even after this earnings report.
In short, unless there is a high volume rollover we still see the NASDAQ breakout as a major positive for the stock market, and thus will be using this weakness to look for strong stocks making orderly pullbacks, holding support, then rebounding back up. Breakout tests are facts of life regardless of what causes them. What we have to do is use them to enter good stocks and ride them back up as the breakout move resumes. Once we see the breakout test holding above the breakout, we look for the rebounds. That is when we move in.
Support and Resistance
NASDAQ: Closed at 2497.78
Resistance:
2493 is an interim peak from February 1999
2523 is price resistance November 2000
Support:
2471 is the December 2006 high
2468.42 is the November 2006 high
The 50 day SMA at 2427
The 50 day EMA at 2416
2412 from June 1999 low
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)
2316 from interim tops in January and March 2006 trading range
2300 represents some price support
S&P 500: Closed at 1431.90
Resistance:
1432 is the December 2006 high
1444 from February 2000
1475 from peaks in December 1999 and January 2000
Support:
1425 is an interim high from November 1999
1419 is the July up trendline
The 18 day EMA at 1419
1408 is the November high
The 50 day EMA at 1403
1401 is a low from April 2000
1390 is the October high.
1389 is a low from November 1999
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.
Dow: Closed at 12,582.59
Resistance:
Still moving higher as it pushes towards 9% above the 200 day SMA. It turned choppy after hitting 8.5% of separation in late October, but is has not sold off and has gained some strength.
Support:
12,499 is the December intraday high.
12,361 is the November 2006 high
The 50 day EMA at 12,297
October high is 12,167
11,986 is price support from mid-October and the early November low.
11,865 from the early October consolidation
11,750.28 is the pre-2000 all-time high
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
January 16
NY Empire State PMI, January (8:30): 9.13 actual versus 20.0 expected, 22.19 prior (revised from 23.1)
January 17
PPI, December (8:30): 0.5% expected, 2.0% prior
Core PPI (8:30): 0.1% expected, 1.3% prior
Net foreign purchases, November (9:00): $81.7B expected, $82.3B prior
Industrial production, December (9:15): 0.1% expected, 0.2% prior
Capacity utilization, December (9:15): 81.7% expected, 81.8% prior
Crude oil inventories (10:30): -4.99M prior
Fed Beige Book (2:00)
January 18
CPI, December (8:30): 0.4% expected, 0.0% prior
Core CPI (8:30): 0.2% expected, 0.0% prior
Housing starts, December (8:30): 1.570M expected, 1.588M prior
Building permits, December (8:30): 1.505M expected, 1.513M prior
Initial jobless claims (8:30): 315K expected, 299K prior
Leading Economic Indicators, December (10:00): 0.2% expected, 0.1% prior
Philly Fed, January (12:00): 2.0 expected, -2.3 prior
January 19
Michigan sentiment, January prelim (10:00): 92.4 expected, 91.7 prior.
End part 1 of 3
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