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3/26/07 Technical Traders Report
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Technical Traders Report Subscribers:
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SUMMARY:
- Market shows some character, comes back from some weaker home sales, higher oil, and continues the consolidation.
- Big drop in new home sales fan economic flame worries.
- Who benefits from taxes?
- Good shakeout continues the consolidation action.
Market overcomes some negatives, rebounds to work on the next break higher.
There were not a whole lot of positives to start the week. The M&A activity slowed to a relative crawl compared to the prior Monday. There were some analyst calls such as a UTX and DELL upgrade. Some good earnings reported by WAG, but juxtaposed with declining earnings expectations (5% growth versus 8% expected just two months back) and concerns about more warnings, that didn't help a whole lot. On the negative side Iran and oil were still in the news (oil closed at $62.91, +0.63/bbl after topping $63 intraday), and that took its toll.
Nonetheless, stocks managed a higher open and were positive until 10ET when new home sales for February hit. The -3.9% drop just missed the 7% gain expected. For some reason the market gave up its gains on the news. Was it the size of the loss, a loss when a gain was expected, the fact that growth was at a 7 year low, that sales were down 18% year/year, or that inventory rose to 8.1 months from 7.3 months? Gee, hard to pick just one.
After that dump lower, however, stocks started clawing their way back. No big surge, no big rebound, just a steady rise on into the close. NASDAQ and SP500 made it positive while the others came close. Not bad action: losing a gain on some unsavory news but then fighting back to post some gains or close more or less flat.
Technically the action was not bad either. Earlier the market was selling on rising trade, but NASDAQ and SP500 tapped the 50 day EMA and the 50 day SMA respectively and rebounded nicely. A good hold of support and a rebound on some rising, though still below average volume. That volume shows that even with the market selling early there was no dumping of stocks. That recovery shows the market still has some character left over from the character changing reversal and breakout. It also continues the consolidation of last Wednesdays follow through session, the one that started Thursday and Friday with the lateral moves on lower trade. Monday was a good shakeout with leadership still in energy and metals, with some assists from technology as well. There are still some solid patterns building, ready to propel the market higher once this pause runs its course.
THE ECONOMY
New home sales sink, unable to follow the lead of existing sales.
After existing homes rose 3.9%, spirits (a.k.a. hope) were up for new home sales. They were expected to rise just over 6% from January's 937K. Instead they fell 3.9%. It would have been worse, and indeed it may still have been, except that January was revised lower to 882K. Either way you slice it, when you expect a gain, a loss is harder to swallow.
As noted above, the numbers didn't get any better when you looked inside. Seven year growth low. Minus 18% year/year. Inventories up to 8.1 months from 7.3 months. Third big revision lower in a row. The gains at the end of 2006 have been doubled by the losses to start the year.
On the bright side you can always blame the weather. It was bad, but then again, that was a known quantity. Still it is harder to sell homes when the weather is bad because people are not out in it. Indeed, new home sales had gained four of the last seven months heading into this year. Weather is playing more of a factor than many cared to admit Monday. Prices didn't feel the heat; median was down just 0.3% while the average price was up 7.5%, though that can be skewed by the extremes.
All in all it was not a great report but a better read will come after as spring starts to hit. Weather did play a roll and as weather moderates we will whether January and February broke the strengthening uptrend (albeit a mini one) trying to build.
Tax facts.
A new study was just released that quantifies the benefits we receive on our tax dollars. We have written before that those paying no taxes receive more than 50% of the benefits our tax dollars buy while those paying 80% of the taxes receive well below half the benefits. This new study is broader in scope, taking into consideration not just programs that provide services, but roads, defense, and the like.
The study found that those making $23,730 or less receive $8.21 per tax dollar paid. The amounts fall sharply for those making $42K to $65K with just a $1.30/dollar payback. At least they got a payback. For those over $99,500 the return was $0.41 on the dollar. That group pays 80+% of the taxes
There is nothing really earth shaking here. We all know that those paying the bills get less of the benefits. The issue is our government, whether run by republicans or democrats, keeps increasing the size of the group that pays no taxes but receives the vast majority of the benefits. What that does is create a voting block that will tend to favor those candidates that will growth the benefits for their group while the minority has to pay more and more.
That is a recipe for economic disaster because at some point, and with Medicare and Social Security it is not too far off, those that pay will simply refuse to do so due to the ever increasing burdens. Hopefully the next administration has better luck with true tax reform, but again, with the recipient group growing larger and larger, each election will find it harder and harder to make meaningful change.
THE MARKET
MARKET SENTIMENT
VIX: 13.16; +0.21
VXN: 17; -0.17
VXO: 12.24; -0.1
Put/Call Ratio (CBOE): 0.99; +0.07. The ratio jumped back up some as the indices reached lower. The recovery slipped it back below 1.0 on the close.
Bulls versus Bears:
Bulls: 46.6%, up from 45.5% and back at the same level of two weeks back (46.2%). Well off the 50.5% and 53.3% seven 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: 28.4%. Down a bit from 28.9%, but holding the strong jump higher from 26.9% and 24.2% the week before. Not bad after spending the first two months of 2007 near 20%. The angst is still strong, 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: +6.7 points (+0.27%) to close at 2455.63
Volume: 1.823B (+7.32%). Volume was up but still below average. Like the volume as NASDAQ fought back to close positive. The sellers were in control early, but then the buyers pushed it back up, overcoming the selling attempt.
Up Volume: 1.149B (+323M)
Down Volume: 655M (-193M)
A/D and Hi/Lo: Decliners led 1.18 to 1
Previous Session: Advancers led 1.11 to 1
New Highs: 138 (+2)
New Lows: 47 (+15)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
The home sales sent a 5 point gain to the dumpster. NASDAQ tapped the 50 day EMA (2428) on the low and then scratched back all session to close at the session high. Trade was up slightly. This is more of the good consolidation action; even better what with the shakeout and recovery. NASDAQ is setting up to continue higher and try to lead back up to the 2500ish level. At that point we see what it can do.
SOX (-0.10%) reached all the way down to the 90 day MA on the low and rebounded flat. Still working on setting a higher low and breaking toward the top of the range back at 493.
SP500/NYSE
Stats: +1.39 points (+0.1%) to close at 1437.5
NYSE Volume: 1.468B (+5.05%). As with NASDAQ, volume rose modestly as the NYSE indices tested lower and recovered off of support. Buyers overcame the sellers.
Up Volume: 723.667M (-99.813M)
Down Volume: 729.461M (+171.982M)
A/D and Hi/Lo: Decliners led 1.04 to 1
Previous Session: Advancers led 1.35 to 1
New Highs: 184 (-4)
New Lows: 15 (+2)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Reached down to the 50 day SMA (1425) and rebounded to close positive. Still working on the handle to the base, working laterally and, importantly, holding the gains off the last low. The reach lower and rebound was a good shakeout and continues the consolidation of the gains.
SP600 (-0.15%) lost some ground, but as with the other indices it recovered from the selling to close basically flat. After the lower volume moves higher to end last week versus a sideways move, it was good to see a reach lower to start shaking out some of the quick sellers.
DJ30
The blue chips reached lower as well, tapping the 10 day EMA on the low (undercutting the 90 and 50 day EMA), then rebounding to close at the 50 day EMA. Volume was up but still well below average; again, good consolidation action as the blue chips form a handle to the short double bottom. A handle's purpose is to shake out the nervous, and this is the action that does it.
Stats: -11.94 points (-0.1%) to close at 12469.07
Volume: 220M shares Monday versus 206M shares Friday. Good shakeout and recovery on rising trade as the buyers overcome some modest selling pressure.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Consumer confidence at 10ET is the only scheduled economic report, but we are starting to hear from more Fed speakers, and that is going to crescendo. Thus far no recants of the interpretation of the last statement, but some mitigation of the dovish side of the statement will undoubtedly come. We were not surprised that Moskow is taking the position that the sub-prime market would not impact the rest of the housing market; Moskow always was a hawk when on the Fed, and thus it is no surprise that he is keeping to his own script of strength because strength in his Phillips Curve mind means more rate hikes are necessary.
The Monday shakeout helps set the stage for a break higher toward the prior highs, the next key point for the market as it tries to extend, and hold, the break higher from the short double bottom. The indices are setting up nicely for the move and it could come at any point after these three sessions. There are still many solid stocks ready to move higher and carry us to the next resistance point. As discussed over the weekend, we are going to move in as it moves up, take what we can from this move, then see how the market acts when it gets there.
Support and Resistance
NASDAQ: Closed at 2455.63
Resistance:
The July/August trendline at 2458
2468.42 is the November 2006 high
2471 is the December 2006 high
2509 is the January 2007 high
2512 is the December/January up trendline
2523 is price resistance November 2000
2531 is the February high (post-2002 high)
Support:
The 90 day MA at 2440
The 50 day EMA at 2428
2405 is the 'hump' high
2400ish from the late November and late December 2006 lows.
2379 is the October high.
2376 is the April high, the former post-2002 high.
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
S&P 500: Closed at 1437.50
Resistance:
1440 is the mid-January high
1444 from February 2000
1456 is the late November to February up trendline
1461.57 is the February 2007 high.
1475 from peaks in December 1999 and January 2000
Support:
1432 is the December 2006 high
The 50 day SMA at 1425
1425 is an interim high from November 1999
The 90 day MA at 1418
The 50 day EMA at 1417
1410 is the 'hump' high
1408 is the November high
1389 is the October peak.
1374 is the early 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
Dow: Closed at 12,469.07
Resistance:
The 50 day SMA at 12,472
12,499 is the December intraday high.
12,796 is the February 2007 and all-time high
Support:
The 90 day MA at 12,417
The 50 day EMA at 12,386
12,361 is the November 2006 high
12,350 is the March 'hump' high
12,039 is the early March low.
October high is 12,167
11,986 is price support from mid-October and the early November low.
11,940 is the March low
11,865 from the early October consolidation
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
March 26
New home sales, February (10:00): 848K actual versus 995K expected, 882K prior (revised from 973K)
March 27
Consumer confidence, March (10:00): 109.0 expected, 112.5 prior
March 28
Durable goods orders, February (8:30): 3.5% expected, -7.8% prior
Crude oil inventories (10:30): 3.9M prior
March 29
Initial jobless claims (8:30): 320K expected, 316K prior
Q4 GDP final (8:30): 2.2% expected, 2.2% prior
Chain Deflator (8:30): 1.7% expected, 1.7% prior
March 30
Personal income, February (8:30): 0.3% expected, 1.0% prior
Personal spending, February (8:30): 0.3% expected, 0.5% prior
Chicago PMI, March (9:45): 49.5 expected, 47.9 prior
Construction spending, February (10:00): -0.6% expected, -0.8% prior
Michigan sentiment final, March (10:00): 88.8 expected, 88.8 prior
End part 1 of 3
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