|
|
day trading, Breakout test
* * * *
3/15/07 Technical Traders Report Update
* * *
Technical Traders Report Subscribers:
MARKET ALERTS
Target hit alerts: None issued
Buy alerts: CL; SPY (bonus)
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:
- Stocks fight off PPI, Greenspan to post modest gains.
- PPI has a bit of indigestion as food prices climb on ethanol.
- Jealous guy: Greenspan claims he is minding his business.
- Market awaits CPI, trying to set up a further bounce in the overall correction.
Greenspan says he is a good boy, market has it doubts.
Foreign markets were down but the US was back to making its own wake, at least until the PPI was released. Both the overall and the core were significantly hotter than expected and that heat melted the early positive bias. The New York PMI was pathetic at 1.9 (17.0 expected). A solid jobless claims report (318K versus 330K prior) and exploding international money flows to the US ($97.4B, $14.3B prior and $60B expected; showing that when the world markets get turbulent money still seeks the US) could not offset that weakness.
Or so it seemed. The bell rang and the indices ran positive for the first hour. An obligatory midmorning dip was weathered and stocks rebounded over lunch despite a very weak Philly PMI (0.2 versus 3.5 expected). Then 'the mouth' opened once more and Greenspan warned of problems with the sub-prime mortgage market spreading. Stocks tumbled into negative territory. The sellers took their shot, however, but they could not finish the job. Stocks once more rebounded, recovering to the latest pre-Greenspan levels by the close. That kept them positive on the session. Small victory.
Technically it was not much of an upside move. The large cap indices could not push past the 10 day EMA, similar to the last upside move. There was talk on the financial stations about the solid internals. Looking at the breadth (2.4:1 NYSE) and up/down volume you could draw that conclusion. The NYSE internals were solid as the small caps led the way with a 1% move.
Volume was sharply lower, however. Yep, there we go again on volume. The reason is it gives you a gauge as to just how strong a move is versus other market moves. The buyers were in control Thursday because the market closed positive. What were they in control of, however? It was a low volume session. In short, there were fewer players in the market. Mostly buyers, but without the other players you cannot conclude it was the new bias in the market. As we have seen, when everyone gets together to party lately, the sellers are the ones in control. That is why you always have to be wary of low volume advances. For further clarification, see last week.
The majority of the market appeared to be waiting on the CPI given the stronger than expected PPI and the weaker than expected regional PMI reports. Thus the lower volume even with expiration Friday on Friday. That left the market with a gain, but a low volume one and still below near resistance. Still in contention for a double bottom and more upside, but also still showing a lack of upside conviction. We don't want to sound negative about the market's prognosis, we just have to call it as it is. The market is still in its correction, it tried to rally but was hammered back Tuesday. It held and is again trying an assent but it is low volume. The action is not a rollover and dive lower in preparation for a bear market, just the action of a correction. That means there is a light ahead for a further advance. It is just that the market likely has to go through another upside and downside before it reaches the light. Run to the light, run to the light.
THE ECONOMY
PPI climb showing the first effects of the ethanol push.
1.4% was way out of line but nothing compared to 2005. Food and energy were the big movers that pushed prices higher. The gain left the year over year at 2.5%, but that was well off the 6.9% mountain top in September 2005 that was the 15 year high on this move. At 2.5% prices are a cakewalk. The core was 0.4%, twice the 0.2% expected. Half of the gain was due to higher tobacco costs; recall that tobacco costs were responsible for the January CPI higher than expected climb. In any event, the core rose 1.8% year/year, unchanged from January.
So we have food giving rise to higher producer prices. This is the revenge of ethanol at work. While we are not producing that much more ethanol following the Bush push to that as an expanded fuel source, bushel prices have climbed and are holding their gains. If you do the math you realize that we have to use every ear of corn, the husk, the stalk, etc. and we still cannot meet the President's goal. Investors are thus bidding up the price.
What is the majority of animal feed comprised of? Corn. Thus feed costs for hogs, cows, chickens, and any other of farmer Brown's animals has screamed higher. That means little Rooter's chops and bacon are higher as well. Further, practically every processed food we have has some part of corn in it. We liquefy most of the corn we eat, and that corn syrup (sorry if we don't get too technical) is used, as noted, in just about every processed food. So, we pay for it in higher meat costs due to higher feed costs, and in higher process foods because it is in most of what we eat.
THAT is the pass through that we are going to see, and it is not due to too much liquidity (the real root of inflation), but too much government. The Fed is thus going to face the threat of higher prices it can do nothing about. If the government mandates we use our corn as it sees fit versus what the market sees fit then raising interest rates is not going to solve the problem. It won't raise more corn. About the only thing it can do is ultimately cut the price of gasoline in general if the Fed raises interest rates and curtails money supply enough to send us into recession. Gee, now that is a great solution to the problem, but when you are relying on the Fed to backstop errant federal policy that is about all it can do. Then we carp about the Fed lousing things up, but it is trying to conduct surgery with a lawnmower and lopping shears. You may save the patient but the surgery and healing process are ugly.
Greenspan: I am being good.
I am not a crook. I am being good, refusing to discuss interest rates and monetary policy. Famous lines from history. The latter is a paraphrase of his answer to a question about his seemingly daily commentary on the economy. Greenspan was out again talking about the mortgage market, saying that despite the limited impact of the sub-prime market thus far, when you take out 10% of the market there are impacts. Of course it is more like 4.5% of the market, but Greenspan always did play fast and loose with facts in order to get to his conclusion.
In any event, Greenspan said that he was not commenting on monetary policy in response to a question about what the proper level was right now and whether the Fed should cut given the mortgage issues. That prompted the question about his comments on other areas. Greenspan said that he had shown restraint in his comments because he was not second guessing the Fed in public about proper interest rate policy. Of course he does not hold his tongue on recession, the carry trade, the sub-prime mortgage market, or deficits and their impact on the economic future. Certainly he is in the clear because there is no relationship between the Fed's actions and those issues.
Maybe a bit of jealousy there and a bit of legacy salvaging? You hear on the tube a lot of commentary about how much better Bernanke has been versus Greenspan. Very legitimate commentary from our point of view. What did Greenspan do in his first year? He jacked up interest rates in an attempt to control the market and ushered in Black Friday and Monday and that market collapse. Then he rode the 1990's prosperity, managing to wreck even that when he turned from laissez fair to micromanaging.
By comparison, Bernanke helped fend off inflation this year by reversing Greenspan's continued money supply expansion even as Greenspan hiked rates. He did it without going overboard and drying up liquidity altogether. Then he paused at the right point when most felt he was crazy to do so. Of course when you are the Fed chief you always have to be right and there is still some inflation to deal with though the leading inflation indicators suggest it is not rising enough to warrant any real concern.
THE MARKET
MARKET SENTIMENT
VIX: 16.43; -0.84. Trying to make a higher low at 16. If that is the case it is likely to really shoot higher as the market makes its next sell off. Recall that VIX has still not hit levels it did in the 2006 correction and likely needs a good spike higher to set the bottom. Also note that the market tends to set its VIX high at the first bottom. Thus there is still more to go on this rise in volatility and thus the fall in the market.
VXN: 18.79; -0.98
VXO: 15.22; -1.17
Put/Call Ratio (CBOE): 1.13; -0.53. Seventeen straight days above 1.0. That is extreme.
Bulls versus Bears:
Bulls: 45.5%, down from 46.2% and well off the 50.5% and 53.3% six weeks back. When it bottomed last summer it was near 36%. That is the lowest level since September 2006. Still a ways to go, but when it cracks it can tumble quickly. A 4.3 point drop is pretty salty.
Bears: 28.9%. Nice fat jumps in the bears, up from 26.9% and 24.2% the week before. Not bad after spending the first two months of 2007. The angst is rising, and as with bulls, it is not all that far from levels that sparked prior rallies. It hit a post-2002 high in that late June 2006 move (hit near 36%), 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). It is not far from those 2005 levels.
NASDAQ
Stats: +6.96 points (+0.29%) to close at 2378.7
Volume: 1.813B (-21.81%). Volume fell well off pace and well below average on the rebound to test the 10 day EMA. Not many in the market though most were buyers.
Up Volume: 997M (-690M)
Down Volume: 779M (+190M)
A/D and Hi/Lo: Advancers led 1.68 to 1. Another so-so session matching the so-so advance.
Previous Session: Advancers led 1.2 to 1
New Highs: 70 (+21)
New Lows: 62 (-112)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
There was nothing really bad about Thursdays action at all. There was no excitement, but nothing really nefarious. Low volume on the bounce was not a good sign and the trade below the 10 day EMA (2387) has a familiar look to it (see last week), but after the reversal on Wednesday a quiet session is nothing major. NASDAQ is still trying to put together a short double bottom at the early March low (matching the October lateral range) and bounce back up. It is likely much too early to put any lasting bottom in at this point, but you always have to let the market do the talking and then listen to what it says. Right now it is trying to bounce but has yet to overcome the heavy distribution marking the initial fall and the strong downside trade on Tuesday. Ultimately we are still looking for a test of the 200 day SMA (2295) before this correction is over.
SOX (+0.13%) did not display the leadership shown of late but it did hold support above the 50 day EMA and show a tight doji on the close. It continues its lateral move in its base, going about its own business as it tries to set up for an eventual breakout. We continue to see many chips holding up well but that has yet to translate into an upside move at this juncture. Holding out promise for the future once this correction has just about run its course.
SP500/NYSE
Stats: +5.11 points (+0.37%) to close at 1392.28
NYSE Volume: 1.508B (-27.12%). Lower below average volume returned as the NYSE stocks climbed but could not make serious headway. Lack of buying strength tends to hamstring upside moves and is there eventual undoing.
Up Volume: 1.098B (-316.891M). Significantly much more upside volume than on NASDAQ.
Down Volume: 390.819M (-235.809M)
A/D and Hi/Lo: Advancers led 2.44 to 1. With the small caps leading the bread was much improved despite modest SP500 gains.
Previous Session: Advancers led 1.53 to 1
New Highs: 84 (+36)
New Lows: 26 (-68)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Continued the Wednesday reversal, tapping at the 10 day EMA (1397) on the high before backing down from that level in the afternoon. Rebounded to hold some gains, but as with NASDAQ, it suffered from lackus volumus, i.e. low volume on the rise. It too is trying to hold together a short double bottom attempt at the October/November side-step range. Looks kind of nice pattern-wise but has yet to show the upside buying is returning in force.
SP600 (+0.99%) rallied as well, moving toward the 90 day MA (402.44) and in the heart of the December and January range. As noted Wednesday, the small caps show a better pattern than the large caps and that puts them in position to be leaders in the next sustained upside move. Right now, however, they are dealing with a larger pattern that has the potential to develop into a head and shoulders, a form of topping pattern.
DJ30
DJ30 rallied modestly as well, also moving on below average volume. Good rebound on Wednesday, but this very anemic move suggests that its better bottom than SP500 won't hold any better. It did not even approach the 10 day EMA (12,220). As with the other indices there is some upside potential, but it is still in a correction and has yet to show that phase is over. Another test of 12,000 and then to the 200 day SMA (11,286) ultimately looks to be in the cards though a bounce to 12,250 and even 12,400 (90 day MA) is possible before that next significant move lower.
Stats: +26.28 points (+0.22%) to close at 12159.68
Volume: 232M shares Thursday versus 333M shares Wednesday. Volume abandoned the blue chips as they tried to extend the Wednesday reversal session. That is the Achilles Heel for this upside attempt.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
CPI and expiration Friday are the big stories Friday though Michigan preliminary sentiment with its 200 respondents will get its share of attention given the worries about the economy of late, particularly the mortgage issues and the weak retail sales.
It could be a big volatile session or it could be a sleeper like last expiration. The key is how the markets act as they again approach near resistance after the reversal attempt started Wednesday following that nasty Tuesday plunge. Friday likely will not be the session that reveals the next move, instead there will likely be more of the same, i.e. a further bounce to that really doesn't get the job done.
At this juncture, however, the market can break either way off this low volume rebound. The overall theme remains correction, while the Wednesday high volume rebound shows there is some remaining starch. The lower volume bounce Thursday was enough to bring out the aggressive nature in us and move into some SPY puts ahead of the CPI.
Obviously we think there is more downside ahead before this correction is done, but at this point there is nothing that tells us this is more than a correction. There is a lot of discussion in the news about the economy, but the long indicators still point to an economic pickup as the year progresses versus a slowdown. Regulatory missteps can always upset the path, but for now that has not occurred. Thus we look for this correction to play out with another downside leg before it is over, and while it will get to the point of pain for most in the market, it will not harpoon the bull run.
Thus we do what we have done to this point. We play the moves up and down when they present themselves, taking some gain when it builds up in either direction. We look for leading stocks that are holding up very well and are actually building toward a breakout despite the overall correction and if they show us good moves we start building positions in them with an eye toward some short term gain and longer term on the other side of the correction. In short, a blended approach to the correction with short term gains as well as longer term. We still cannot get too complacent with the long term positions if they fall under pressure, but we see enough solid positions to the upside to indicate it is very much worth pursuing them when they show us they mean business.
Support and Resistance
NASDAQ: Closed at 2378.70
Resistance:
2376 is the April high, the former post-2002 high. Bending a bit.
2379 is the October high.
2400ish from the late November and late December 2006 lows.
The 50 day EMA at 2427
The 90 day MA at 2436
The July/August trendline at 2442
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:
2368 is the early October handle high.
2340 is the March low
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
The 200 day SMA at 2295
S&P 500: Closed at 1392.28
Resistance:
The 10 day EMA at 1397
1408 is the November high
The 90 day MA at 1415
The 50 day EMA at 1415
1425 is an interim high from November 1999
1432 is the December 2006 high
1440 is the mid-January high
1444 from February 2000
1453 is the late November to February up trendline
1475 from peaks in December 1999 and January 2000
Support:
1389 is the October peak.
1374 is the March low
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
The 200 day SMA at 1350
Dow: Closed at 12,159.68
Resistance:
The 10 day EMA at 12,220
12,361 is the November 2006 high
The 50 day EMA at 12,393
The 90 day MA at 12,396
12,499 is the December intraday high.
12,715 is the up trendline connecting the November and January intraday lows.
Support:
12,039 is the March low.
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
The 200 day SMA at 11,826
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 12
Treasury Budget, February (2:00): -$120.0B actual versus -$123.0B expected, -$119.2b prior
March 13
Retail sales, February (8:30): 0.1% actual versus 0.3% expected, 0.0% prior
Retail ex-auto (8:30): -0.1% actual versus 0.3% expected, 0.2% prior (revised from 0.3%)
Business Inventories, January (10:00): 0.2% actual versus 0.2% expected, 0.0% prior
March 14
Current Account, Q4 (8:30): -$195.8B versus -$203.5B expected, -$225.6B prior
Crude oil inventories (10:30): +1.1M actual versus +1.6M expected, -4.848M prior
March 15
PPI, February (8:30): 1.3% actual versus 0.5% expected, -0.6% prior
Core PPI (8:30): 0.4% actual versus 0.2% expected, 0.2% prior
Initial jobless claims (8:30): 318K actual versus 325K expected versus 330K prior
NY Empire State Index, March (8:30): 1.9 actual versus 17.0 expected, 24.4 prior
Net foreign purchases, January (9:00): $97.4B actual versus $60.0B expected, $14.3B prior (revised from $15.6B)
Philly Fed, March (12:00): 0.2 actual versus 3.5 expected, 0.6 prior
March 16
CPI, February (8:30): 0.3% expected, 0.2% prior
Core CPI (8:30): 0.2% expected, 0.3% prior
Industrial production, February (9:15): 0.3% expected, -0.5% prior
Capacity utilization, February (9:15): 81.3% expected, 81.2% prior
Michigan sentiment, preliminary, March (10:00): 89.0 expected, 91.3 prior
End part 1 of 3
|
day trading
Breakout test
|
