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world stock market, us stock market
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3/27/07 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: ION; NUAN
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:
- Market continues its low volume sag, ratcheting up the pessimism.
- Consumer confidence fades but once again, it is not tanking sharply or hitting critical levels.
- A bit more of a test and the market is primed to make the next bounce.
- Keep it real: still in a correction and building off a short base.
Another down day drives up the worries.
There was not a whole lot to drive the market Tuesday. After the afternoon rebound Monday stocks tested again and tried to make the recovery, but they could not do it as well. There were some earnings that went both ways. LEH (homes) really stunk the place up and ETH (furniture) missed its number as well. TGT was a bright spot as it affirmed its 11% to 13% sales growth estimate for March. GME the electronics game store ran past expectations.
Outside of that, oil was flat (closed at 62.93, +0.02), gold was lower, and bonds were almost flat with the yield curve holding positive by a hair (4.59% versus 4.61%). Consumer confidence missed expectations, and that further fueled the speculation that things were amiss with the economy. That number doesn't show that at all; more on that later.
The market did not blow lower. Volume ran lighter all session. It was just a sag downside that a late rebound could not rescue. Breadth was very negative. That was a main topic on the financial stations as they talked of the 'internals' being weak. There are some services that we monitor, and they were very concerned about the weak breadth as well.
What does this pessimism mean? We like it. These services always get glum on these types of moves. You know, a breakout that is quite strong but then has a week of lateral and lower moves where the market is simply not able to push higher. The volume is low but they focus on stock price action and tally up breadth figures. Breadth tells part of the story, but usually just a small part. If you had a plate full of food it would be the squash; good for you and tastes okay, but it doesn't make the meal. Anyway, when these guys get all negative over this kind of action there is usually a break higher fairly quickly. With the indices sporting four days of basically lateral and lower action the pullback is just about ripe.
The technical story shows the kind of action we are talking about. Four days of testing lower toward support (in this case SP500 and NASDAQ are testing the 50 day MA) on low volume, volume that is well below average. Breadth is indeed negative at times such as on Tuesday, but there are not many breakdowns in the market despite many stocks trading lower for the session. As with the indices, many are just fading back to near support, particularly the leaders. Just look at the report and the kind of action they are showing.
This is very typical in a test of a move higher, particularly after a breakout from a base such as the short double bottom the indices set up. That in itself gets many worried: they don't see any 'follow through' to the strong move that started the rally. They view it as the breakout losing momentum, and when you couple that with some negative breadth and they figure its time to stick a fork in it.
Just about at that point, however, the market breaks higher once more. It has done so on many occasions when this very combination of events transpired. The market put in a couple more days of consolidation as we were looking for, doing so on low volume. Leadership has held up. Those are solid credentials from our point of view.
The bigger issue as we see it is whether the next move runs out of gas at the prior trendlines or highs. Time for the broken record once more. The double bottom the indices are rallying from was short. Typically such short bases cannot support another sustained bull run, particularly when it consolidates a 7 month rally. Still, if the market continues to show strong action with stocks break higher from good patterns on good volume, you have to go with what the market is telling you. Thus we are looking to play the breakout up to those points and then see how the indices and the leadership (most of the plays on the report) react. It is getting closer to that 'sell in May and go away' time (heard that on the financial stations today as well; see, they are getting twisted up over this pullback).
There can always be something that upsets a good pullback such as the one we have now. It is earnings warnings season and there could be a big name or two that rocks the market. There are geopolitical events that could spark some worry if oil shoots higher. Of course, energy stocks, materials, and metals are still performing, and recall how they led the start of the 2006 rally and the rally prior to the 2006 correction. Also recall that the market tends to make good moves when world events, economic turmoil, and general pessimism all converge.
THE ECONOMY
Confidence not as confident as expected.
March consumer confidence slipped to 107.2 versus the 109 expected. That was down from Februarys 111.2 as well. Surely things are going into the tank. At least that is what we were hearing Tuesday.
Whoa there. Time for dose of reality that is not dipped in the pessimism and 'sub-prime' manic depression that is fogging up views of the economy. That dip in confidence comes after a 5 year high hit the prior month. Expectations were lower at 86.9, the lowest since August 2006. That doesn't sound good. But wait. August 2006 was when the market bottomed and started the rally. Yes, the market is factored into confidence, and it has tanked into a correction. Right after the big downdraft the political candidates were out feeding off it, trying to make the case the drop was part of a larger economic issue that had plagued the US for six years. Maybe you could argue the huge numbers the expansion threw off slipped their minds (that was back in 2003 and 2004 after all), but gee, the market just rallied for 7 months and hit new post-2002 highs. You would think that a correction of less than 10% would be measured against that move. You would think, but when it comes to politics, thinking, at least rational thinking, does not play too big a role.
Another way to look at this is from an absolute confidence level. Typically it takes confidence readings in the 60's, indeed the 50's, to indicate the consumer is so negative that consumption will languish to an extent that it leads to recession. Moreover, you need to look at the rate of decline. If confidence is tanking in the 30% range then you can infer that it is trending down at a rate that has a recession flavor to it. After this decline confidence is basically where it was a year ago.
The economic numbers are cycle slowing numbers, not recession numbers.
In sum the less than expected confidence result fed into the current depression regarding the economic future. The sub-prime mortgage issues are discussed daily and they have everyone in a heightened state of economic angst. In reality, however, the numbers we are seeing are typical of a mid-cycle slowdown in an ongoing expansion. Maybe oil and gasoline prices will end it this time; if Iran and Britain go toe to toe gasoline could spike to $5/gallon in no time, particularly if Iran shuts the Strait of Hormuz. It is hard to plan for those events, however. What we are seeing now is mid-cycle economic slow and a market trying to set up for a run to test the prior highs. From there we see how stocks react.
THE MARKET
MARKET SENTIMENT
VIX: 13.48; +0.32
VXN: 17.2; +0.2
VXO: 13; +0.76
Put/Call Ratio (CBOE): 0.98; -0.01
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: -18.2 points (-0.74%) to close at 2437.43
Volume: 1.803B (-1.1%). Volume continued lower as NASDAQ faded further. Well below average and much lower than the upside moves that started the rally and then kept it going with the follow through. Thus we like the price/volume action.
Up Volume: 569M (-580M)
Down Volume: 1.208B (+553M)
A/D and Hi/Lo: Decliners led 1.99 to 1. Much broader to the downside than Monday, but it has also been very broad on the strong upside moves as well.
Previous Session: Decliners led 1.18 to 1
New Highs: 92 (-46)
New Lows: 57 (+10)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ never got to the upside Tuesday, gapping lower and then sagging through the 90 day MA to close. Easily held above the 50 day EMA (2428), never testing that level as it did on Monday. Low volume fade above support, continuing the handle formation to the short double bottom. Still has resistance starting at 2500, but that gives the index plenty of upside on a breakout from here.
SOX (-0.67%) continues to hold just above the halfway mark in its 5 month lateral move. Trying for a higher low here at 475 support. Good point for it to make a run at the prior highs in the range at 493.
SP500/NYSE
Stats: -7.89 points (-0.55%) to close at 1429.61
NYSE Volume: 1.382B (-5.89%). Volume remained well below average as well as it also came in lower as the point loss increased. Still the kind of price/volume action you want to see for an upside move, i.e. higher on the upside and lower on the downside.
Up Volume: 368.166M (-355.501M)
Down Volume: 999.771M (+270.31M)
A/D and Hi/Lo: Decliners led 2.23 to 1. Similar to NASDAQ, pumping up on the Tuesday selling. The breadth on the breakout and follow through, however, were stronger.
Previous Session: Decliners led 1.04 to 1
New Highs: 129 (-55)
New Lows: 21 (+6)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Another fade for SP500 as it tapped the 50 day SMA (1425) once more, just as Monday. It did not rebound today but no real damage done as volume was very low (again) on the fade. Nice handle is forming and setting SP500 for a break higher to run and test the February high at 1462.
The small cap SP600 (-0.75%) matched the techs with their loss but they are still above the 10 day EMA in this pullback given they drifted higher to end last week versus starting the lateral to lower test. In excellent position to come back and test support at 410 and then resume the move higher.
DJ30
DJ30 faded to the 50 day EMA (12,386) Tuesday, unable to rebound Tuesday as it did Monday. Volume faded further below average as it did. As with the other indices, nice price/volume action on the test, and that sets up the break higher.
Stats: -71.78 points (-0.58%) to close at 12397.29
Volume: 209M shares Tuesday versus 220M shares Monday. Good price/volume action as the blue chips fade back to test the prior break higher.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
Bernanke speaks to Congress Wednesday and durable goods orders are out before the open. If they are weak we will hear more about how bad the economy is; all the better for the current pullback if, of course, it does not lose much more ground and volume remains in control. Indeed, another push lower could be the finishing touch on the pullback and lead to a snapback that starts the next leg toward the February highs. With the durable goods report out early and then Bernanke speaking later, the market could get an event that pushes it lower for the final shakeout and then a catalyst to the upside.
It is also the end of the quarter this week and that could play a role in pushing the market back up after this pullback. That makes it a bit harder to gauge the longevity of the move, but as we have noted many times, we have to be careful on a further run that makes it up to the prior highs. If we keep our heads and don't get to thinking that this 4 to 5 week double bottom is going to set the bottom of the correction and sustain another 7 month rally we will be okay.
NASDAQ has assumed something of a leadership role on this move and it is likely to be a leader if the breakout does come. That has to make you take some pause; it was a leader for a short period to start the year but then gave it up. Just something to keep in mind if there is a breakout and the indices hit the prior highs and start to stall.
We have built the case for a further rally based on the price/volume action and leadership, typically the two most important aspects of any move up or down. The market could always just give up here and head lower; that would be in keeping with correction action. In short, it could rally up from here based on the good price/volume action and leadership and then stall at the old highs, or it could get a shock that just stalls it in its tracks here and sends it lower to test that intraday push lower. In short, though we have a follow through session and that gives us more confidence in taking upside positions, we are still inside a correction and have to show it some respect by keeping our eyes open. For now the signals look positive for another try higher, and we are going to be ready to take advantage of that when it comes.
Support and Resistance
NASDAQ: Closed at 2437.43
Resistance:
The July/August trendline at 2459
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 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 1428.61
Resistance:
1432 is the December 2006 high
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:
The 50 day SMA at 1426 held again Tuesday
1425 is an interim high from November 1999
The 90 day MA at 1419
The 50 day EMA at 1418
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 12,397.29
Resistance:
The 50 day SMA at 12,469
12,499 is the December intraday high.
12,796 is the February 2007 and all-time high
Support:
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): 107.2 actual versus 109.0 expected, 111.2 prior (revised from 112.5)
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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