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invest financial, day trading
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3/06/07 Technical Traders Report Update
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Technical Traders Report Subscribers:
Full report issues Wednesday
MARKET ALERTS
Target hit alerts: SBUX (took the rest off the table)
Buy alerts: ICE
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.html
SUMMARY:
- Summary is a bit later given after hours CNBC taping with Jon Johnson
- Relief rebound gaps out the selling despite continued modest economic data.
- Greenspan still on his recession kick while Paulson shows his mettle.
- Initial rebound attempt to try and recover more lost ground.
From the selling to the buying in a single bell.
Monday the indices showed a hint of a recovery attempt, rebounding from that gap lower, but the sellers used that rebound and the market sold hard into the close. One bell later and stocks were gapping higher. Greenspan put recession odds at 33%, Q4 productivity was weak (1.6% versus 1.7% expected; slowest year/year gains since 1997), and unit labor costs jumped 6.6% (3.2% expected, 1.7% prior; the highest since a 4.2% showing in 2000). Pretty bleak continuation of rather bleak economic data of late (outside the national ISM).
That did not matter to stocks. After the selling they were close to a rebound point, and when the Japanese yen finally fell versus foreign currencies that injected some life back into the upside. It certainly was enough to get the shorts covering as one of the main drivers to start the session. It also helped that Treasury secretary Paulson was in Japan, talking about the housing market being close to a bottom and the sub-prime mortgage issues would not hurt the financial markets. Whether he was right or wrong the world likes a strong US Treasury secretary who knows when and how to calm the markets. What the Yen did to trigger the initial rebound, Paulson did in equal part to keep it going.
Technically it was a mixed session. Big gains on the indices range from a meager 1.3% on DJ30 to 2.05% on SP600. Breadth was excellent at 4.8:1 on NYSE, 4.1:1 on NASDAQ. That was basically a flip from the broad Monday selling. Monday took it away, Tuesday brought it back with just about equal vigor.
Well not exactly. You knew there was a rub coming, and after such a blast lower it is improbable that the market turns on a dime and rebounds as if nothing ever happened, particularly with such impressive downside breaks of trendlines at the culmination of a long, steady rally. Volume was lower on the rebound. Not below average lower, just lower. It just cracked average on NASDAQ. The point is that volume on this move was not as strong as the selling volume. Maybe it will build into something, but it is typical in a correction that upside volume doesn't rise to the level of downside. It can such as in powerful short covering rallies where the shorts cover en masse, but breadth is typically very weak on those moves as shorts concentrate on the really weak sectors they sold off.
This rebound was light on volume but solid on breadth. There was buying here along with the covering. There is still a bid under the market. Hurray. Let's declare the correction over. Therein lies the rub: everyone assumes this will be just a correction, an inconvenience on the way to double digit gains this year. After a 7 month run that kind of crazy talk has to be wrung out of the market. Thus a rebound for a few sessions, maybe a week, and then another leg lower. Likely another leg lower after that selling rebounds. That is the old 'scare them out' effect that is the hallmark of corrections. There is still talk of another down leg but with a big upside move that gets many excited once more. That makes the fall all the more effective. At this stage, however, the correction is young despite the selling, and there is likely more downside to come.
Precursor to a recession?
There is always the possibility that what starts as a correction turns into something worse. The severity of the breakdown and the global nature of the drop has some saying that is the case. Others point to the sub-prime market and the appearance of some distress in the very low in credit card debt as signs bigger trouble lurks. The saying goes if you see one cockroach it has brothers and sisters.
These could be the early warnings of a real problem ahead, but as we discussed last week there is no confluence of negatives that typically indicate serious economic trouble. The long leading indicators are not showing it. To the contrary they have been showing a bottoming of the slowdown and an upturn after midyear. You have to keep watch, however, and it is good some are out there keeping everyone honest.
In reality, however, the run was long and extended. Seven months without a hiccup on this last leg. Overseas emerging markets were way up, surging on all of that liquidity trying to find the next good idea to invest in. We chronicled since December how the run was getting extended and was slowly shifting character, but that money kept filling in each dip. There is another saying, the higher they climb the harder they fall. The NYSE large caps were overextended and it was time for a correction. They climbed higher, they fell a bit harder.
Was this any worse than the first meltdown on NASDAQ last summer? No it was not. In May NASDAQ dropped 200 points. This drop? Not even 200 points on the move. After the longer rally it just felt sharper I guess.
THE ECONOMY
The Greenspan factor.
Some are wondering if Greenspan has some insight into the recession given his tenure on the Fed and his 'maestro' title. You know what we are going to say. If Greenspan were still Fed chairman then I would be predicting recession as well. He was terrible at calling a recession. He carped about irrational exuberance and the economy boomed and the market soared for almost three more years. Then it only collapsed because he helped engineer a massive liquidity bath and then pulled the plug in one quick move. He thought he saw bad times coming and prepared us for them by exacerbating the run higher and then panicking and pulling the plug. Think of the moron who lights fires and then plays hero as he helps put them out.
Yep, I certainly want to listen to him. Again, if he was Fed chairman I would be railing once more because he would be attempting to cure a problem that did not exist. He states that because the economy has expanded for roughly six years (he is long on that) that imbalances are occurring. The main imbalance we recall was money supply under his control. Ham-handed manipulation choked the expansion.
In sum, Greenspan is a pain right now as he tries to recapture past glories, but as he is no longer Fed chairman and can engineer what he predicts, his musings are just what they appear to be: a guy who misses the limelight is trying to recapture some of it and earn those big fees he draws for speaking. It is as if he is having retiree's remorse. At least he is retired now and cannot screw things up again.
THE MARKET
MARKET SENTIMENT
VIX: 15.96; -3.67. Tumbling stone-like as anticipated when the indices rebounded
VXN: 21.19; -3.42
VXO: 15.94; -4.56
Put/Call Ratio (CBOE): 1.25; -0.42. 10 consecutive days above 1.0 on the close.
Bulls versus Bears:
Bulls: 50.5%, up modestly from 50.0%. Ticking higher after falling from 51.1% two weeks back and 53.3% just over a month ago. Not a lot of movement, but we can make book on it being lower next week. 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: 24.2%. Definitely more angst as bears rose from 22.2% and 21.1% before that. Held in the low twenties for 2 months but starting to come to life and will surge next week. Hit a 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: +44.46 points (+1.9%) to close at 2385.14
Volume: 2.231B (-6.19%)
Up Volume: 2.086B (+1.66B)
Down Volume: 125M (-1.799B)
A/D and Hi/Lo: Advancers led 4.16 to 1. As on NYSE, a mirror image to the Monday breadth.
Previous Session: Decliners led 4.21 to 1
New Highs: 52 (+10)
New Lows: 72 (-110)
NASDAQ CHART: http://www.themarketbeat.com/videonewslettercharts/NASDAQ.jpeg
If the link does not open, cut and paste the link into your browser.
Sold to the bottom of the October/November range and then started the rebound. That was just enough downside gig to jump up the fear level and also give the shorts a reason to cover. Now we see if it can get back over 2400 and up to around 2425 or so.
SOX (1.66%) is hanging in its range, still trying to ignite. There are some chip stocks moving, but as a group they are still not quite savory.
SP500/NYSE
Stats: +21.29 points (+1.55%) to close at 1395.41
NYSE Volume: 1.835B (-7.83%)
Up Volume: 1.715B (+1.545B)
Down Volume: 115.4M (-1.699B)
A/D and Hi/Lo: Advancers led 4.82 to 1. Note the mirror to Monday.
Previous Session: Decliners led 4.71 to 1
New Highs: 71 (+15)
New Lows: 36 (-71)
SP500 CHART: http://www.themarketbeat.com/videonewslettercharts/SP500.jpeg
If the link does not open, cut and paste the link into your browser.
As with NASDAQ, SP500 bounced smartly off the bottom of the October/November lateral range as it starts its rebound bounce. 1425ish would be a nice point to reach.
SP600 (2.05%) jumped off support at 390. A move to 405ish on this bounce puts it at the top of the late 2006 range.
DJ30
12,000 proved sticky for the Dow and it gapped higher after the Monday close that was 50 points from that level. That also marked the bottom of the October/November small lateral move. All of the indices used that to advance. A move up toward the 90 day MA at 12,388 or a bit beyond would be about right if there is anything to some of the buying that we saw in addition to the short covering.
Stats: +157.18 points (+1.3%) to close at 12207.59
Volume: 192M shares Tuesday versus 278M shares Monday. The selling weakened Monday but the buying was even weaker Tuesday with a drop to well below average.
DJ30 CHART: http://www.themarketbeat.com/videonewslettercharts/DJ30.jpeg
If the link does not open, cut and paste the link into your browser.
WEDNESDAY
The first relief move started Tuesday when the yen stopped rising and was not a threat to the carry trade for the day. That triggered an oversold rebound. Typically you can get a few sessions, even a week out of such a move. Typically. There is always the one day wonder rallies you have to watch for. They typically occur when things are really negative for the economy and the market. Hard selling and then an upside day; all it does is let off some pressure and the selling starts anew.
The breadth Tuesday suggests there is a bit more here than short covering, and thus we can see a rise into Friday. If it can make that move the indices will near those targets outlined above and we may see an intraday turn at that point. That is typical in corrections, but each correction has its own nuances. As I said on CNBC for tomorrow's how to win the million dollar trading contest interview, you have to know the lifecycle's of corrections, but they still have their own nuances. As seen Tuesday, the momentum can be completely one-sided, and then before the next bell you get a 180 degree shift.
Thus we are still looking to the upside but we are not going to be too aggressive. We were not that aggressive even today. Lots of beat up stocks rallied the most while the leaders continued to bide there time, letting the riff-raff have their day of recovery. That is another indication that the shorts were at work: the slaughtered stocks were rebounding while the leaders that held the line at near support and are setting up their next moves just went about their business; no shorts in them to cover.
The leaders tend to move at their own pace and at their own timetable. When that initial gush of covering is over and the market still rallies, then you see these stocks head back up.
Thus we will look at more of them. At this juncture in the market you look at a lot of strong stocks that made nice pullbacks or tests and then you see which ones make the strong moves. You go with the ones that make the moves. Look at quality, and then the strongest make the moves. You naturally move into the stronger stocks this way. In this kind of market that is one good way to make some upside gain on the upswings.
Support and Resistance
NASDAQ: Closed at 2385.14
Resistance:
2400ish from the late November and late December 2006 lows.
The July/August trendline at 2427
The 90 day MA at 2434
The 50 day EMA at 2443
2468.42 is the November 2006 high
2471 is the December 2006 high
2509 is the January 2007 high
2523 is price resistance November 2000
Support:
2379 is the October high.
2376 is the April high, the former post-2002 high
2368 is the early October handle high.
2339 - 2334
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 1395.41
Resistance:
1400 is some price support
1408 is the November high
The 90 day MA at 1414
The 50 day EMA at 1423
1425 is an interim high from November 1999
1432 is the December 2006 high
1440 is the mid-January high
1444 from February 2000
1447 is the late November to February up trendline
1475 from peaks in December 1999 and January 2000
Support:
1389 is the October peak.
1371 to 1373 is the December 2000 peak and the January 2001 peak
1369 from early October 2006
1358 to 1362 mark a series of peaks from April 1999 to August 1999 high and the February
1353 to 1350 is the early October consolidation range
Dow: Closed at 12,207.59
Resistance:
12,361 is the November 2006 high
The 90 day MA at 12,389
12,499 is the December intraday high.
The 50 day EMA at 12,455
12,684 is the up trendline connecting the November and January intraday lows.
Support:
11,986 is price support from mid-October and the early November low.
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
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.
March 5
ISM Services, February (10:00): 54.3 actual versus 57.5 expected, 59.0 prior
March 6
Q4 Productivity, revised (8:30): 1.6% actual versus 1.7% expected, 3.0% prior
Factory orders, January (10:00): -5.6% actual versus -4.0% expected, 2.6% prior (revised from 2.4%)
March 7
Crude oil inventories (10:30): 1.4M prior
Federal Reserve Beige Book (2:00)
Consumer Credit, January (3:00): $7.0B expected, $6.0B prior
March 8
Initial jobless claims (8:30): 335K expected, 338K prior
March 9
Non-farm payrolls, February (8:30): 100K expected, 111K prior
Unemployment rate (8:30): 4.6% expected, 4.6% prior
Average hourly earnings (8:30): 0.3% expected, 0.2% prior
Trade balance, January (8:30): -$60.0B actual, -$61.2B prior
Wholesale inventories, January (10:00): -0.1% expected, -0.5% prior.
End part 1 of 3
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