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us stock market, trading system
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1/23/07 Technical Traders Report Update
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Technical Traders Report Subscribers:
Full report issues Wednesday
MARKET ALERTS
Target hit alerts: None issued
Buy alerts: CTRP; EQIX; MCRL; VIP
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:
- Oil rebounds and stocks stall ahead of more earnings, state of the union.
- State of the Union showcases more ideas but none that will get any action.
- Stocks try to reload on a new batch of earnings.
Stocks bounce but slip on an afternoon oil patch.
It was another day of testing the footing. Stocks started lower but rebounded positive. They sold back. They rebounded again, moving well into positive territory. They ended the day barely hanging onto gains. Pretty slippery footing even with NASDAQ at the 50 day EMA.
Earnings were of course on the front burner, and they were not bad with some beats (UTX, JNJ, BOA), some in line (DD), and some warnings (Alcatel-Lucent). It was not enough, however, to push stocks higher. Of course, it did not shove them lower either, something to note given the reaction to the first round of results that came out last week. Things were dicey after that first surge started to fade, but the December Leading Economic Indicators came in better than expected (0.3% versus 0.2% expected and 0.1% prior) and that spurred stocks on to their next leg higher that pushed everything positive.
In the background oil was a bit higher, and with the energy stocks continuing their rebound bounces that was not really viewed as a threat, just a relief move from the slaughter in oil prices. With energy stocks moving SP600 was out in front, posting a very solid 1% gain. Oil did not just bounce up, however, it really started to run in the afternoon. It rallied sharply to close up $2.36 at 55.04/bbl. As oil surged in the afternoon, stocks lost their footing. By the close they held gains by a whisker except for the smaller caps and DJ30. Techs again struggled, finishing again over the 50 day EMA, still trying to find a reason to rally.
Technically the indices closed in basically the same position as Monday, recouping some of the losses on that session and not really advancing the ball. NASDAQ rallied off the 50 day EMA but by the close was back at that level. Still holding and showing a doji, but it could not hold onto the gain. SP600 managed a bounce off of its 50 day EMA, and with energy improving it managed to hold onto most of its move. SP500 moved up off the 18 day EMA and DJ30 recovered the same level, keeping both in their uptrends. SOX basically SUX, holding above 450 support but similar to NASDAQ, unable to hold an early bounce off that level.
With the small caps moving well breadth was almost 2:1 on NYSE, and even with NASDAQ flat advancers topped decliners 1.5:1. NASDAQ 100 was the loser, down 0.32%; the early leaders in the January rally are struggling.
Volume turned up the heat a bit so there was some accumulation on the NYSE with the small caps moving higher, but NASDAQ showed some churn as volume rose but prices did not. You can view that as negative, and it certainly wasn't a wildly successful session, but rising volume after a pullback to the 50 day EMA is often a positive as big money is stepping in and supporting stocks at that level.
That leaves NASDAQ and SOX still licking their wounds but NASDAQ still in position to try a higher low if it can get the right kind of guidance from enough important stocks to allow investors to build higher earnings into prices. It is trying to hold the line and along with SP600 cobble together a rebound. They have not broken down and started a full-fledged sell off, and given the earnings disappointments (MOT, INTC, AMD, AAPL, LRCX, etc.) that is a left-handed positive. It still has to make something of the hold, and that means getting some upside ammunition from key techs. Money is still staying with the market for now, and that provides something to build on.
THE ECONOMY
White House initiatives likely to get little action except those that can do damage.
The President is trotting out more agenda items for his last two years of office, trying desperately to switch the nation's mind from Iraq and the tough going there. Once more there is talk of converting to more ethanol fuels, restructuring healthcare, reforming a system that guarantees our children negative retirement dollars (social security), and fixing immigration. Some of the ideas are good while others are designed just to get some kind of consensus with the new Congress.
The only ones with any chance of progress are the more dangerous ones, but one thing is certain: Congress will do nothing that will give the appearance that Bush is somewhat effective ahead of the 2008 elections. The Democrats have their eye on the White House in 2008 and they won't work to get any serious reforms in place that the President and republican party can claim. Just as the Republicans refused to live up to their campaign promises to their constituents in the last election when they opted to 'play to the masses' to get re-elected versus take hard, meaningful action, the democrats will kill any serious, meaningful reforms and instead apply feel good bandages to festering problems.
Sounds pretty cynical, but the last elections only underscored that the name of the game in D.C. is keeping or taking power. The republicans broke promises in order to try and hold power. It didn't work of course, but that only proves the point: they are so power hungry they will break their oaths and forsake their principles in an attempt to maintain power.
Ethanol is again on the stage as some sort of savior to our gasoline and thus oil consumption. Of course we could use every kernel of corn produced in the US (sorry Mr. Redenbacher and Jiffy Pop) and make only about a 3% dent in our gasoline consumption. Of course our food prices would go through the roof because corn prices would soar. Hogs and cattle consume vast quantities of corn as they are prepared for market, and thus the cost of raising livestock surges along with corn prices. Depending upon the process, when you include all of the costs of switching our corn crops to ethanol (and corn is a very poor source for ethanol because it has such low sugar content) you are looking at $12 to $20+ per gallon to produce. That includes the diversion of corn from other uses and the corresponding rise in associated costs of those other uses. Of course the government is going to subsidize the conversion so you won't see some of the costs directly, just indirectly as another unseen reason the 'blob' of federal spending expands further and further.
Healthcare is another issue that will get a lot of talk, and there are some really great ideas here and some really bad ones. Expanding the HAS plans (health savings accounts) further is a great idea. It allows people to save their deductibles tax free in an account that can grow tax free as well. It allows deductions for just about any medical expense. It lets many self-employed actually afford insurance versus the traditional employer provided plans that are simply ridiculously high. Most importantly, it works to break the mindset that 'insurance will pay for it.' The individual is put in charge of obtaining the services and it makes a smarter consumer that the healthcare providers have to deal with. We have HSA's and every care provider we go to has negotiated lower rates with us and is much more responsive in providing accurate information as to procedures. We have much better relationships with our healthcare providers because we know a lot more about the what's, why's and how's with respect to our treatments and fitness plans.
Unfortunately there are fundamental differences between the parties as to who should be in charge. The democrats want nothing short of national healthcare so they malign HSA's as only catering to the rich. Absurd. They never have an HSA subscriber on the show when they level these complaints against the system. There are now thousands of small businesses with healthcare coverage that would not have healthcare without them. That sounds like a success. It may not be the total answer, but it is filling a huge void in the current system. If everyone was able to take their premiums and deductible and put it in a tax free account and let it build up, they would see what a great vehicle this is to pay for health insurance versus flushing needlessly high premiums down the toilet each month whether you use the plan or not. That would undermine the very need for national healthcare and thus the opposition from much of the democratic party. Not all of it, but the ones that are running it.
Then there is social security. Bush is going to propose in the next few months that the tax cap be raised and that those paying in less receive more in benefits. That removes it from the 'we are all in this together' plan and makes it another redistribution entitlement. That won't fly with most conservatives, republican or democrat, who only tolerate SS because it is at least an equal pay, equal share system. Private accounts are a great idea just as they are in healthcare, but that won't work because you need to borrow some to bridge the gap to pay the current promises will letting younger workers open accounts. With the pay-go rules passed that is not going to happen. The other step that should be used in conjunction with private accounts is raising the age of receipt for younger workers to match what it was when the program was created over 70 years ago.
That would require raising the age of receipt to 79 versus 65. Back when SS was passed the average US citizen lived to be 62. To receive one dime you had to outlive the statistics by 3 years. We now have an average lifespan of 76. To make the math even close to working you raise the receipt age to 79 (it still is not exact because we are now much older as a nation versus in the 1930's). That is not going to happen either, so meaningful reform is out the window. Congress and the President will get together and raise the tax cap and saddle us with more taxes. That is the federal answer to any problem.
Immigration reform is on the list, but again, meaningful progress is unlikely. Some say that is the answer to our SS problem: just let them all in and give them a free citizenship pass and then tax them to collect the social security funds. Larry Kudlow is a big advocate of letting what he calls hard-working illegals have citizenship. We are a nation built upon immigrants so you don't want to close the door to those seeking a better life. But a wide open border is foolish. We are in a war against terrorists who vow to strike us here at home. A wide open border invites some nasty attacks in the future with bio weapons and/or nuclear weapons. In addition, there is the health issue that has been kept quiet. Tuberculosis, small pox, whooping cough, leprosy and even polio are once more showing up in border and many southern states as the illegals walk across the border with no health checks at all. If we are worried about healthcare costs for our legal citizens, we should at the very least demand that immigrants be healthy. It is not uncommon at all to deny access to those that have communicable diseases. Why would we want to put our children at risk with open season on plagues that we had wiped out in the US decades ago? Even in the 1920's and 1930's immigrants had to come through central checkpoints to enter the country. Is it now bad policy to require the same now? Of course not.
THE MARKET
MARKET SENTIMENT
VIX: 10.34; -0.43
VXN: 17.34; -0.31
VXO: 9.66; -0.49
Put/Call Ratio (CBOE): 0.91; -0.05. Still near 1.0 but not there, and that suggests the anxiety is not high enough to warrant any lasting rebound.
Bulls versus Bears:
Bulls: 50.5%. Quite a drop for the week, down 5 points form 55.4%. After a blip higher they are resuming what was a modest dip (down just 4 points over the past 6 weeks). Major drop here even as SP500 and DJ30 remain in good shape. Peaked in January 2006 peak at just above 60%.
Bears: 22.1%. Moving back up after nearly undercutting the 20% level considered bearish Up from 20.7% last week after a few weeks trading near 20%. 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: +0.34 points (+0.01%) to close at 2431.41
Volume: 2.043B (+6.15%). Volume was up solidly above average as NASDAQ tried to advance but closed flat. Not bad action as noted above because this shows buyers stepping in at key support to prop techs up. Not reason to cheer in itself, but a positive with the volume situation after the distribution last week.
Up Volume: 931.033M (+553.796M)
Down Volume: 1.068B (-467.688M)
A/D and Hi/Lo: Advancers led 1.53 to 1. NASDAQ was flat and the large cap techs were down (-0.32%). It is obviously more than tech trying to push NASDAQ back up, but without the large cap techs that make up most of the index weighting it is a tougher go.
Previous Session: Decliners led 1.87 to 1
New Highs: 70 (-4)
New Lows: 23 (-16)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ rallied up to the 18 day EMA (2449) and then faded back to flat as oil rallied sharply in the afternoon session. That kept NASDAQ just above its 50 day EMA (2421), trying to hold at that point and make a higher low to try the breakout once more. The hammer doji at that level is not a bad sign, though one with a tail that rallied back versus one that jumped higher but then faded would be a stronger upside signal. Even with all of the earnings angst (kind of catchy phrase) it is still in position to make a higher low. That is rather amazing in itself given the foul mood regarding earnings. Well, maybe not amazing; more like very interesting. Maybe YHOO can get things rolling; nets have been showing relative strength to techs so they are a logical leader.
SOX (+0.12%) was rather pathetic Tuesday, rallying to 458 but not threatening the 200 day SMA it broke last week and unable to hold most of the bounce attempt. It is above some support at 450 but below the 200 day SMA after it broke out of the bottom side of its 8 week lateral move; kind of a no-man's land and its pattern certainly has the look of one no man wants to be in.
SP500/NYSE
Stats: +5.04 points (+0.35%) to close at 1427.99
NYSE Volume: 1.668B (+12.08%). Volume was back up above average as SP500 and SP600 both posted gains off of support. There was some accumulation on the NYSE and in the small caps. Cool.
Up Volume: 1.107B (+671.81M)
Down Volume: 542.097M (-468.242M)
A/D and Hi/Lo: Advancers led 1.94 to 1. Pretty solid breadth, outpacing the downside A/D ratio on the Monday decline. Those energy stocks rising with oil prices really helped things out.
Previous Session: Decliners led 1.75 to 1
New Highs: 156 (+27)
New Lows: 5 (-7)
http://investmenthouse.com/cd/^gspc.html
SP500 held the 18 day EMA (1422) and posted a modest gain off of that near support. Volume was up, showing there was some serious buying. Financials were struggling, and thus SP500 closed off its high (1431.33). SP500 is still just below the December highs and of course the mid-January highs that topped those November highs. Trying to set a higher low to continue its advance and a move to a new post-2002 high. It is showing the right moves even though it remains extended.
The small cap SP600 (+1.04%) led the market higher on the back of the energy stocks that found more life as oil recovered. Both the stocks and oil are rebounding from a pretty harsh butt kicking that sent oil below $50/bbl for a few minutes. That brought out some short covering and now some upside buying as short term traders move in to take advantage of a bounce. The small caps held the 50 day EMA and bounced on solid volume. Still have not broken the short string of lower highs, but still working through the handle of the larger 9 month cup with handle base.
DJ30
DJ30 rebounded from the Monday selling though volume ran lighter as DJ30 recovered the 18 day EMA. This has the look of another in a long series of bounces off the 18 day EMA as DJ30 continues its climb up the short term moving averages that started back in July off of that low. A long way up with no serious correction, and market patterns (if not gravity) typically require a correction. Similar to a watched pot, with everyone calling for a correction it is not occurring, particularly as techs started to struggle after taking large cap NYSE funds to start the year. With NASDAQ selling back these NYSE indices are getting some of that money.
Stats: +56.64 points (+0.45%) to close at 12533.8
Volume: 236M shares Tuesday versus 240M shares Monday. With big sell offs on earnings within the index as seen with INTC et al of late, volume backed off.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
The after hours trade weighed YHOO's results and new search/ad system and corresponding rise in stock price to AMD's woeful miss of even its downward guidance from last week. Overall techs were trading higher, favoring YHOO's proactive steps (QQQQ was up to 43.76 from the 43.58 close). Kind of a hurray for the go-getters.
Will it translate into some upside? NASDAQ sold off pretty hard, reversing a nice breakout and getting whacked on expiration week, falling back down into its range. It is now at the 50 day EMA, still in position to make a higher low and try again to make its next move. Thus far earnings have failed to elicit any response other than negative, yet NASDAQ holds the 50 day EMA despite giving up the breakout. Lots of negatives but still above some key support and still in the lateral range. That does not mean a break higher is assured, just showing some positives, not just folding its hand after a pretty hard tail kicking.
Outside of tech and SOX the market is holding up solidly as healthcare, consumer stocks and financials continue to perform while metals and energy make a comeback. If tech finds a catalyst and makes a higher low here the market will get that boost it needs. Sure seems like a tough hill to climb, however, given earnings are slowing and the market is still trying to get its arms around what slowing earnings mean for current stock prices. That means solid outlooks from companies investors view as solid bellwethers for technology, e.g. GOOG, HPQ, CSCO. Not sure if YHOO with its weakened position in the internet sector fills that bill.
Aside from tech, however, there are still a lot of stocks in good shape and in good position to resume or start moves higher, and they are from across the entire market. Indeed, much of the market looks solid and if techs can find a catalyst that will add to the strength of the leaders that are still setting up and forging ahead.
Support and Resistance
NASDAQ: Closed at 2431.41
Resistance:
2468.42 is the November 2006 high
2471 is the December 2006 high
2493 is an interim peak from February 1999
2523 is price resistance November 2000
Support:
The 50 day EMA at 2422
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 1427.99
Resistance:
1428 is the July up trendline
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
The 18 day EMA at 1422
1408 is the November high
The 50 day EMA at 1407
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 12,533.80
Resistance:
About 8.4% 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:
The 18 day EMA is 12,491
12,499 is the December intraday high.
12,361 is the November 2006 high
The 50 day EMA at 12,342
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 23
Leading Economic Indicators, December (10:00): 0.3% actual versus 0.2% expected, 0.1% prior
January 24
Crude oil inventories (10:30): 6.78M prior
January 25
Initial jobless claims (8:30): 310K expected, 290K prior
Existing home sales, December (10:00): 6.30M expected, 6.28M prior
January 26
Durable goods orders, December (8:30): 3.5% expected, 1.6% prior
New home sales, December (10:00): 1.05M expected, 1.047M prior
End part 1 of 3
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