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us stock market, trade stock
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2/26/07 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Target hit alerts: None issued
Buy alerts: RIMM; SHFL
Trailing stops: GS
Stop alerts: AMX
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.html
SUMMARY:
- Early bounce turns into more downside testing.
- Greenspan recession redux
- NYSE volume up as DJ30 holds its trendline.
- Market at the bounce point if it is to keep this trend.
Early upside gap fails as market tests further.
Three days of testing tried to give way to a bounce Monday morning, and it did for about 10 minutes. A lot more M&A activity (TXU going private, rumor of a DOW buyout, STN heading private as well) kept things interesting and got the new money for the week into the market early.
Once that new money was spent, however, the sellers moved in quickly, using the early bounce to sell into. Oil was a bit too high (closed at $61.39, +0.25) and words from the former Fed chairman managed to commit rally interuptus. Stocks sold into midmorning, tried to hold the line near the NASDAQ January 2007 high (the breakout point for the new post-2002 high hit last week), failed that attempt, and then tried to throw a scare into stocks with a dump into lunch. Stocks rebounded into the afternoon, cutting some losses but never threatening to turn back to positive.
Technically there were some issues even though the indices held support and managed a modest rebound in the afternoon session. NASDAQ undercut the 2509 breakout point, tapping the 18 day EMA on the low. It rebounded, however, to hold the 10 day EMA (2501) on the close. Not bad. SP500 tested the 18 day EMA as well, rebounding to post a modest loss. DJ30 tested just below its trendline and rebounded to hold that level. So far holding support despite sellers' attempts to take it lower.
Digging a bit deeper you have to parse the action and the result is that the jury is still out on this pullback. As noted, the indices held support where you would more or less expect them too if they intend on recovering and continuing the uptrend. Volume was up on NYSE as those indices sold. That is technically distribution, but you have to put that into context. Specifically, the NYSE indices held support where they needed to do so. They gave up little ground. What this tells you is that some big money stepped in to support their stocks at the 50 day EMA. Thus even with the losses the higher volume shows buyers moving in at support. That compression on rising trade shows the buyers attempting to make a stand.
Leadership struggled a bit more, however. The big name financials such as GS, MS, C, etc. got slapped around hard, turning sharply lower on surging volume. Retail struggled more as well both during the session and after hours on earnings. Those are two strong leadership groups for this rally, and if they fold up they rest of the market can catch their contagion.
Thus the market is at an important crossroads right now, holding its near support but showing cracks in some important leadership groups. Many of the Monday leaders were defensive, e.g. paper, energy, metals. That is not definitive, but shows that some of the mindset out there is to hunker down some. Again, the market is at the point where it will bounce and continue the action or will fold up shop for that deeper correction. We are going to look for upside buys if it can hold and find more upside volume but be ready for one flying in from left field so it does not catch us looking just one way.
THE ECONOMY
Greenspan fields questions, mishandles a candy hop.
Part of the somewhat dour mood Monday relates to a comment former chairman Greenspan made in a Q&A session following a Monday morning speech. A reporter queried whether there was a possibility of a recession in 2007. "When you get this far away from a recession invariably forces build up for the next recession, and indeed we are beginning to see that sign." Greenspan was referring to housing and the rise in defaults in the sub-prime mortgage market. He also noted that corporate profit growth was stabilizing and that is a sign of a potential slowdown. He said there was the possibility of a recession in late 2007.
That 'possibility' was read by many as 'probability.' Another case of hearing what you want to hear, seeing what you want to see. Greenspan placed a low chance of a recession actually occurring, yet the mere mention of recession possibility from one deemed the expert on the economy put many in a foul mood.
The only real fear his back and forth commentary should raise is the children's saying 'it takes one to know one.' Greenspan helped usher in more than his share of recessions, and thus had plenty of opportunity to see their genesis up close and personal.
By the end of the year anything is possible. ECRI shows decent growth ahead, and right now there is not the confluence of negatives that led to a recession. Favorable conditions can be snuffed out of the Fed and/or Congress gets overactive and tries to regulate too much. Again, Greenspan should know; strong economic growth was broken on the rocks of his continued rate hikes and the draining of the money supply pool in early 2000.
In sum, recessions are not in and of themselves inevitable in a free market economy. At least they are not something you can set your calendar by. Just because an expansion is long in the tooth does not necessarily suggest a recession is around the corner. It is how we react to an expansion that typically ushers in the downfall. Congress gets a lot of tax revenue from the expansion and initiates new programs that suck up more tax dollars, taking vital growth funds from the economy. It then regulates money more and more such as the regulations it wants to put on hedge funds, telling purportedly free US citizens just how they can and cannot invest their money. Of course Congress is used to that; it takes our money now and 'invests' it for others to use, gaining a whopping 1% to 2% over the lifetime of your investment. Considering basic compounding of invested dollars, that return is pitiful. Yet Congress wants to tell you how to invest. Hmmmm.
THE MARKET
MARKET SENTIMENT
VIX: 11.15; +0.57
VXN: 15.98; +0.66
VXO: 11.07; +0.47
Put/Call Ratio (CBOE): 1.02; -0.41. Backed off from the Friday spike, but the fourth straight close above 1.0 and the fifth in two weeks. Starting to get interesting, particularly with the indices back at near support following this pullback.
Bulls versus Bears:
Bulls: 50.0%, down from 51.1% last week and 53.3% four weeks back. Starting to head in the right direction after grazing past 55% (the 55.4%) in early January. Still quite a bit of bullishness though backing down from the 55% threshold hit to end 2006 and considered bearish as it signals pretty much everyone is in the market.
Bears: 22.2%, up from 21.1% last week though still hanging in this low twenties range (was 22.2% three weeks back). Still too close at this juncture as it indicates not enough pessimism. When bears are low it is the same as high bulls: everyone is in. Hit a new post-2002 high in that late June 2006 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: -10.58 points (-0.42%) to close at 2504.52
Volume: 1.905B (-7.3%). This is how you want to see volume respond. It slipped back below average for the first time in a week as NASDAQ tested its recent breakout to a new post-2002 high. No real selling on the pullback, and that continues the overall positive action in tech land.
Up Volume: 694.044M (-12.89M)
Down Volume: 1.056B (-210.144M)
A/D and Hi/Lo: Decliners led 1.48 to 1. Pretty modest downside breadth once gain. Definitely not running away to the downside.
Previous Session: Decliners led 1.3 to 1
New Highs: 104 (+20)
New Lows: 24 (+5)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
Another downside session for NASDAQ, the second in a row and just the third in 9 sessions. It tapped the 18 day EMA on the low and rebounded to close just above the 10 day EMA. That undercut support at 2500 intraday and it closed below the January high at 2509, but it also held the early February highs on the lows. Thus far still holding the breakout move and still decent price/volume action as it does. Prime point where it can make its break higher, particularly if money continues to move out of NYSE large caps and toward techs.
SOX (-0.10%) tried to tack some more gain onto last week's break above 475, but it is finding some resistance at the November and December highs (493.25). It still did not give up any ground despite failing to make the break. Key resistance point for SOX as it tries to move into something of a leadership position.
SP500/NYSE
Stats: -1.82 points (-0.13%) to close at 1449.37
NYSE Volume: 1.555B (+7.35%). Volume moved up to average as the NYSE indices tested near support and held. As noted above, that can indicate the buyers came back in to support their stocks at support.
Up Volume: 774.419M (+181.477M)
Down Volume: 753.716M (-78.893M)
A/D and Hi/Lo: Decliners led 1 to 1. Not bad at all.
Previous Session: Decliners led 1.07 to 1
New Highs: 187 (+53)
New Lows: 15 (+6)
http://investmenthouse.com/cd/^gspc.html
SP500 slightly undercut the 18 day EMA (1447) on the low and rebounded to hold that near support with a modest loss. That keeps it near the halfway point in its uptrend channel, still showing more relative strength than DJ30. Somewhat surprising given the weakness in the large cap financials.
SP600 (-0.34%) tested near support as well, holding roughly at the 10 day EMA (418.55) on the low and rebounding for a modest loss as well. It remains in the upper reaches of its uptrend channel as well, not giving much ground after bumping into it last week. The rise in energy is holding the small caps up even as they take a breather.
DJ30
The blue chips made it four down sessions in a row, and that is typically all it needs to get the financial stations lathered up given they view the Dow as the 'market.' It nicely held the up trendline on the low and showed a loose doji on the candlestick chart. The latter suggests the pullback is at its low point, but by itself a doji is rarely confirmation. Simply put, DJ30 has made its pullback and is in position to once more rebound. It is all a matter of money at this stage, i.e. if new money is still willing to buy into each dip, including this one. It is possible it could try a shakeout move, i.e. a dump down toward the 50 day EMA (12,530) intraday and throw a scare into investors. It has not, however, tested close to the 50 day EMA since it left that support level in mid-August 2006
Stats: -15.22 points (-0.12%) to close at 12632.26
Volume: 230M shares Monday versus 215M shares Friday. Some distribution Thursday, and volume moved higher to average Monday as DJ30 hit its up trendline. As noted, rising volume as a stock or index bunches up at support indicates buyers stepping up and buying. We will see if they are still strong enough to hold the day.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
The economic data machine cranks back up with durable goods orders, consumer confidence, and existing home sales. This coincides with DJ30 at its up trendline and some waffling in leadership (financials, retail). The other indices appear in fine shape on this pullback, but that is how NASDAQ looked in mid-January before it gave up that breakout.
As with any test, all this means is we have to be careful as the indices try to end this test and add another notch to the rally with another upside leg. There were some sellers in the market on the early push higher; they have been skulking around the fringes for the past three months, but while they have thrown back a NASDAQ break higher they could not stop the NYSE advance nor NASDAQ as it made a couple of higher lows and broke out again last week.
We will thus continue to look for some potential upside plays given the posture at near support and the lack of any breakdown. More money tried to fill the pullback early Monday, but it was not quite time for it to hold sway. With DJ30 at the trendline we can start looking for a rebound though SP500 still has not come all the way back even with some pressure in financials and retail. That is a sign of strength in other areas as they pick up the slack. While we still view NYSE as extended, given the nature of the pullback thus far, i.e. DJ30 holding the trendline and the other indices being very stingy with their gains, it behooves us to be ready for a new upside leg.
Support and Resistance
NASDAQ: Closed at 2504.52
Resistance:
2509 is the January 2007 high
2523 is price resistance November 2000
2533 is the upper channel from the November and January highs.
2573 - 2852 from peaks in April and May 1999
Support:
The 18 day EMA at 2489
2471 is the December 2006 high
2468.42 is the November 2006 high
The 50 day EMA at 2458
2450 is minor support
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.
S&P 500: Closed at 1449.37
Resistance:
1465 is the upper band of the current channel
1475 from peaks in December 1999 and January 2000
Support:
The 18 day EMA at 1447
1444 from February 2000
1440 is the mid-January high
1440 is the late November to February up trendline
1432 is the December 2006 high
The 50 day EMA at 1430
1425 is an interim high from November 1999
1408 is the November high
Dow: Closed at 12,632.26
Resistance:
12,810 is the upper channel line marking the November to date uptrend channel.
About 8.6% above the 200 day SMA. Still going strong, overcoming the chop as it pushes to a series of new highs once more.
Support:
12,624 is the up trendline connecting the November and January intraday lows.
The 50 day EMA at 12,530
12,499 is the December intraday high.
12,361 is the November 2006 high
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.
February 27
Durable goods orders, January (8:30): -3.0% expected, 2.9% prior
Consumer confidence, February (10:00): 109.0 expected, 110.3 prior
Existing home sales, January (10:00): 6.24M expected, 6.22M prior
February 28
Q4 GDP 2nd iteration (8:30): 2.3% expected, 3.5% prior
Deflator, Q4 (8:30): 1.5% expected, 1.5% prior
Chicago PMI, February (9:45): 50.0 expected, 48.8 prior
New home sales, January (10:00): 1.08M expected, 1.12M prior
Crude oil inventories (10:30): 3.694M bbl prior
March 1
Personal income, January (8:30): 0.3% expected, 0.5% prior
Personal spending, January (8:30): 0.4% expected, 0.7% prior
Initial jobless claims (8:30): 325K expected, 332K prior
Construction spending, January (10:00): -0.4% expected, -0.4% prior
ISM Index, February (10:00): 50.0 expected, 49.3 prior
March 2
Michigan sentiment (final), February (10:00): 93.3 expected, 93.3 prior
End part 1 of 3
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