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us stock market, trend trading stock
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4/02/07 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Target hit alerts: None issued
Buy alerts: ALL; PCU
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:
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SUMMARY:
- New money bounces market higher early, weaker ISM keeps things in check.
- Lower volume inside day sets up a more telling Tuesday.
- ISM prices spook investors, as the Fed moves toward a public statement of neutrality and then a rate cut.
- Ready for market to end the neutrality.
There were some deals (FDC going private), some economic prognostications (JPM lowered its growth outlook), and some earnings warnings. There was another story on mortgages as MTB guided lower, noting its Alternate A mortgages (a notch above sub-prime) were the cause of the anticipated shortfall. Iran intimated that the hostage situation could be resolved diplomatically, and that helped cool the oil market (at least it kept it from rising so fast as oil closed at $65.94, +0.15).
It was apparently enough, at least early on, to get stocks moving to the upside. Then the ISM report came out. It was basically in line but the prices component surged. Stocks did not. They gave back their gains and basically mixed (NYSE indices outperforming) and mostly lower into the afternoon. After lunch stocks caught a bid and rallied back, once more salvaging some upside as they try to hold the line and set up another rally.
Technically there were two significant points to the session. Well, there were more, but two to note in addition to the usual ones. First, though the indices sold lower once more, they did not undercut last week's lows, and thus the session did not lean any further to the downside than last week. Second, the indices traded an inside day, i.e. a day where the lows and highs were within the lows and highs of the prior session. That in itself does not tell you much about direction, but it does tell you to watch how the next session trades because off of this signal that direction is usually the way the market winds up heading near term. Thus though Monday did not resolve the question of which way near term, it is setting up to do just that.
As for the other aspects of the technical pattern we note that the indices once more traded lower but they again recovered their losses. After that bout of distribution early last week they have righted themselves somewhat, at least enough to keep the attempt at forming a handle alive. Volume was well off pace once more indicating no real conviction on the early selling or on the rebound. Breadth was decent on NYSE as energy, metals, and utilities recovered and turned positive in the afternoon. Modestly bullish recovery off the lows, but again, the Monday pattern suggests Tuesday will tell more of the tale as to the success of this handle attempt.
THE ECONOMY
National ISM sees prices rise, growth components fade.
The report was basically in line at 50.9 (51.0 expected), bringing it down from 52.3 the month prior that turned the index positive after a brief contraction. What rattled the market after its release was the price surge (65.6 versus 58.5), employment falling to 48.7 (51.1 expected), and the orders backlog contracting as well (47.0 versus 51.5). That price component was the high since August.
New orders were not great, but at 51.6 at least they held above contraction (54.9 expected). This was in contrast to the strong Chicago PMI on Friday, but it takes the national a couple of months to track the regions. This time the regions are not uniform in direction. Given the issues some are showing and the economic slowing, a close above 50 is decent. Still shows a trend lower, and with the closes below 50 a few months back you can see the manufacturing sector is basically flat lining right now. Again, that is at least decent news if the economy is just in a mid-cycle slowdown and is going to reassert itself later in the year.
Fed-speak a bit more dovish than you would expect.
Last week Moskow talked about how he felt inflation pressures would moderate and that the sub-prime mortgage issue would not likely spill over into the rest of the economy. Great news. Hurray. Monday Poole was out speaking as well, and he said that inflation pressures would moderate and that the sub-prime mortgage issues would not likely spill over into the rest of the economy.
Now as you know, the Fed's statement from its last FOMC meeting, though containing new and hawkish language, was viewed more dovish by the market as the Fed removed the reference to additional tightening being needed. We opined that the market may have overreacted and that the Fed would come out and clear the air so to speak as to just how hawkish it still was.
Bernanke looked to be doing this with his testimony to Congress last week, and as we saw, the market did not like what he was peddling. These subsequent comments, however, are not fire and brimstone at all, and are not taking investors to task on a too dovish interpretation. Indeed, Poole is the Bernanke's mouthpiece for Fed policy. Of course Bernanke trumps, but Poole was sent out afterwards to mend the wounds.
What does this mean that the Fed is not coming out as it has done on several occasions when it felt the market misinterpreted its statements? It means the Fed is truly engaged in its next move to shift perceptions from a tightening Fed worried about inflation to a Fed that is truly neutral. It has to get there in the event it has to cut rates. It does not want to go straight to the 'triple dog dare' as in 'A Christmas Story' as that would be too upsetting to the markets. In such a case either the market would view the Fed as panicking or that the Fed saw something really horrible coming and started cutting. Either way investors lose confidence, and that is always bad for the market.
So, the Fed is indeed working on its second shift in its rate policy, i.e. going to neutral after pausing in its hiking mode. Indeed, many believe the Fed is already at neutral despite its statements to the contrary. There is a certain protocol to the process, and though the Fed is indeed at neutral, it has to allot the proper amount of time to the transition process lest it look hasty.
Even though Q4 GDP was stronger than expected at 2.5%, the Fed is still going to be cutting sooner than later given this ongoing shift. GDP was up but it also showed that corporate profits were starting to slow their growth. Corporations and businesses are also slowing their capital investment. Profits/earnings drive the stock market, and they stood at 10% to 11% growth expectations to start the year. They are now falling to 5%. Earnings drive the market, and while the market is not the Fed's primary concern, if the economic data continues to weaken it is going to have to face that and either decide to let the economy slip into recession and play tough on inflation or take action. We don't think Bernanke really buys into the inflation is too hot argument, so we anticipate a rate cut sooner now.
THE MARKET
MARKET SENTIMENT
VIX: 14.53; -0.11
VXN: 18.6; +0.36
VXO: 13.79; -0.62
Put/Call Ratio (CBOE): 0.83; -0.37
Bulls versus Bears:
Bulls: 48.4%. Bullish sentiment sparked up from 46.6% and 45.5% before that. Still off the 50.5% and 53.3% two months back, but now bulls are getting too high once more on this little bounce and that harkens another downside move in the correction. Bulls 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: 27.5%, down from 28.4% and 28.9% the week before. This bounce in the correction heartened investors, but there is likely going to be more rise again in the bears before this is over. Still holding much of the strong jump higher from 26.9% and 24.2% last month. 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: +0.62 points (+0.03%) to close at 2422.26
Volume: 1.811B (-14.9%). Volume fell back from the average level hit Friday during the quarter ending shuffle, coming in well below average. That means no distribution on the selling, but of course no accumulation on the rebound. As with the 'inside day,' it did not tell much.
Up Volume: 841M (-346M)
Down Volume: 894M (-4M)
A/D and Hi/Lo: A dead heat at 1:1
Previous Session: Advancers led 1.31 to 1
New Highs: 119 (+6)
New Lows: 74 (+10)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ is trying to salvage that follow through session from a couple of weeks back, making a higher low intraday Monday though still below the 50 day EMA (2427) yet again. It is still working on the handle, trying to set up a new break higher that continues the surge from a couple of weeks back. An inside day as discussed above, so we are looking for NASDAQ to show us some direction Tuesday or Wednesday. It is a bit weaker than SP500 and much more so than SP600, but if those to break higher NASDAQ will likely follow.
SOX (-0.03%) was lower by a hair after it too reached lower intraday but managed to hold above the Thursday low at 460 and rebounded to flat. It is still indicating it has a desire to try and rally up off of this point and head toward 480ish in its 5 month range.
SP500/NYSE
Stats: +3.69 points (+0.26%) to close at 1424.55
NYSE Volume: 1.503B (-4.89%). Volume was lower and remained below average as SP500 tapped the 50 day EMA and recovered positive. No accumulation but no distribution either. Still trying to work off that touch of distribution suffered last week.
Up Volume: 935.203M (+223.602M)
Down Volume: 548.841M (-285.853M)
A/D and Hi/Lo: Advancers led 1.68 to 1. With the small and mid-caps leading the market the breadth readings were not bad considering the rather flat performance of the major indices.
Previous Session: Advancers led 1.25 to 1
New Highs: 199 (+49)
New Lows: 34 (+17)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Tested below the 50 day EMA (1418) and then recovered to close positive. Volume was lower and the pattern was an inside day just as with NASDAQ. That says the session was a big nothing, though it sets up an indicator based upon which way the index breaks from here. It is in a bit better technical position than NASDAQ as it is over the 50 day EMA (1418). It is showing the right attributes to break higher; just needs a catalyst.
SP600 (+0.45%) was the market leader along with SP400 (mid-caps). It is also the technical leader as well as it has not even approached its 50 day EMA on this pullback, instead holding near support at the 10 and 18 day EMA. Excellent pattern.
DJ30
Low volume on the blue chip index as they posted a modest gain, unable to take out the 50 day EMA. Similar to NASDAQ, trying to hold some support and find the strength to make a rebound to continue the surge that started two weeks back. Still needs SP600 and SP500 to make the wake for it.
Stats: +27.95 points (+0.23%) to close at 12382.3
Volume: 209M shares Monday versus 233M shares Friday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
No economic reports are scheduled for Tuesday but there is of course plenty of international intrigue what with the Iran hostage situation. That story seems to be softening some, and with that the energy stocks took a breather on Monday. A bit of rest and they will be ready to move higher once more.
Given the technical action Monday we will watch Tuesday closely to see if the indices break higher or lower through the Monday range. That is a fairly reliable indicator of near term movement, but we still want to see the indices break below the recent lows before there is a definitive indication the trade is lower as opposed to a continuation of the break higher from two weeks back.
We have fine upside plays and we have some downside plays primed to take advantage of any break lower. The market is showing signs it could do either, but as we have noted before, there are plenty of stocks that are in excellent position and that provides support and leadership for the market. Thus even in another pullback we anticipate many of these stocks to hold up relatively well and provide some leadership when the market turns back up. Sure they will sell some, but if they hold support on trade that does not shoot higher they will be in good position to rally back.
Monday we saw many upside plays moving higher but very few had volume. It is Passover and a shortened week as Good Friday is closed to trading. Thus we are likely not going to see a lot of upside volume in general. There is always, however, volume in some upside breakouts, and we will be looking at those if the market decides to make the turn back up.
Support and Resistance
NASDAQ: Closed at 2422.26
Resistance:
The 50 day EMA at 2427
2460 is the March high
The July/August trendline at 2468
2468.42 is the November 2006 high
2471 is the December 2006 high
2509 is the January 2007 high
2516 is the December/January up trendline
2523 is price resistance November 2000
2531 is the February high (post-2002 high)
Support:
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 1424.55
Resistance:
1425 is an interim high from November 1999
The 50 day SMA at 1425
1432 is the December 2006 high
1439 is the March high
1440 is the mid-January high
1444 from February 2000
1461.57 is the February 2007 high.
1462 is the late November to February up trendline
1475 from peaks in December 1999 and January 2000
Support:
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 12,382.30
Resistance:
The 50 day EMA at 12,381
The 90 day MA at 12,423
The 50 day SMA at 12,451
12,499 is the December intraday high.
12,796 is the February 2007 and all-time high
Support:
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.
April 2
ISM Index, March (10:00): 50.9 actual versus 51.0 expected, 52.3 prior
April 4
Factory orders, February (10:00): 2.0% expected, -5.6% prior
ISM Services, march (10:00): 54.7 expected, 54.3 prior
Crude oil inventories (10:30): -846K prior
April 5
Initial jobless claims (8:30): 308K prior
April 6
Non-farm payrolls, March (8:30): 120K expected, 97K prior
Unemployment rate, March (8:30): 4.6% expected, 4.5% prior
Average hourly earnings (8:30): 0.3% expected, 0.4% prior
Average workweek (8:30): 33.8 expected, 33.7 prior
Wholesale inventories, February (10:00): 0.4% expected, 0.7% prior
Consumer credit, February (3:00): $5.0B expected, $6.4B prior
End part 1 of 3
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