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4/04/07 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Target hit alerts: None issued
Buy alerts: COGO; PAAS; THQI; VDSI; WFR
Trailing stops: None issued
Stop alerts: JNJ
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 fights off weak gasoline inventories, so-so economic data, posts a so-so gain.
- ISM Services posts weakest showing in four years
- Factory orders lower than expected but still solid.
- Trying to hold gains into the holiday weekend with some positive guidance from MU, but with jobs report on Friday and no trade, may find some late issues.
Stocks follow the Tuesday rebound with modest but steady gains.
There were not a lot of positives pre-market, but futures hung in there. The ADP payroll report suggested just 106K jobs last month. BBY and CC provided tepid guidance. MNST warned on earnings. Mortgage applications fell 3.2% last week. Futures were lower but a soft open after a big move is not bad action at all. Further, Asian markets were strong and the yen was weaker versus the dollar. That has been a winning combination the past month.
Then right at the open more good news hit. The Iranian president was droning on about Iran's heroes that hijacked the UK sailors, awarding them Iran's version of the medal of honor. Oil was rising on the ceremony, fearing a build up to some nefarious announcement. Nope. He then said the UK sailors would be 'pardoned.' How magnanimous; you grab someone conducting themselves lawfully, detain them for a couple of weeks, call them criminals, threaten to put them on trial, and then pardon them. Surely the actions of a sane, stable member of the world community.
That helped boost the market right at the open and it pushed oil lower. Not much boost and not much lower oil, however. Stocks were positive on the news, but oil only sold modestly (64.38, -0.26 on the close). That good news wore off quickly when ISM services came in under expectations as did factory orders. Both were up, but in a climate of economic worry, anything shy of expectations gets knowing winks and nods from the television heads as they discuss the economic collapse to come. When gasoline inventories were released 30 minutes later and were down 5M bbl versus the -1M expected, the modest buying was once more scuttled. Seems the Iranian pardon and the prospect of reducing the geopolitical premium in oil prices could not hold up to hard numbers. With refinery runs static, the market did not view it as much of a bearish indication for energy prices.
Once more, however, the market showed some of the backbone it regenerated over the past two weeks. It overcame the news and slowly turned the modestly negative losses into gains. All session the indices recovered, testing after lunch, then recovering once more into the close. Nothing great, nothing spectacular, just a steady recovery in the face of some not so great news.
Technically it was not a pillar of strength either, but for a holiday shortened week it was about par. There was that low to high action that overcame some bad news. Volume was very low, coming in well below average, while breadth was mixed and modest (1.1:1 NYSE, -1.1:1 NASD). There was leadership, however. That is the true backbone to the move; all during the correction we saw many stocks holding up well. Some were rallying during the correction (energy, metals) while others used it to scratch out nice short bases. The past couple of sessions those leaders have come to life. There are some great individual moves out there, and with many stocks continuing to find support and work on bases, the market has enjoyed underlying support.
The Tuesday move engendered some upside momentum and that helped keep stocks moving up Wednesday. Thursday is the last trading session of the week, and with 4 to 5 moves higher off the recent lows the momentum may hit a snag. If there is more upside early Thursday it will be worth it to take some gain to the bank. We are highlighting those ripe for this in the continuing play table. MU engendered a bit of after hours buying when it noted a 'quite bullish' outlook. MU is hardly a leader, however, and any pop on this news many not have endurance legs.
THE ECONOMY
ISM Services hold positive, miss expectations.
After the ISM beat expectations surely the stronger service sector would. Not. 52.4 is still expansionary, but it is less so than the 54.7 expected and the 54.3 prior. Much less than January's 59.0 whopper.
There were some 'firsts' after several years of expansion. There is the 4 year low. New orders were the lowest seen since August. Prices paid jumped to 63.3, the highest since late summer 2006. Employment fell to 50.8, the lowest since July 2004. Exports fell to 48.5, showing contraction for the first time since July 2003.
This data shows a picture similar to the other economic reports, i.e. making lower highs and lower lows since early 2004. The trend is lower, and of course it can always continue to move lower. It is, however, consistent with just a slowdown in the economic expansion. There is a lot that can go wrong as outlined earlier this week, but the data is far from conclusive that there is going to be the kind of collapse so many are predicting. All this data point does is show the modest slowing continues and at an orderly pace as well.
Factory orders rise, but fall without transportation.
Orders rose 1.0%, less than the 1.9%, but when down 5.7% in January, it was a bit of relief. Just a bit, however. Take out transportation and orders fell for the sixth time in seven months. Year over year is the same story with orders declining 1.1%. Core capital goods orders, the business investment that drives that side of the economy, fell 2.2% year/year. After peaking in September, orders are following the lower business capital investment lower.
As discussed Tuesday night, this downturn in business capital investment is a major stumbling block for a continuing economic expansion. As seen from 2000 to 2003, if the business side is not buying equipment, it does not really matter how strong the consumer is. The question for this aspect of orders is whether they are just in a lull (similar to the economy) while companies spend their cash buying back stock, or if there is a shift undergoing that signals a change in their attitudes regarding the future.
As we have often discussed, businesses tend to be wrong on economic cycles. They are too bullish at the top and too negative at the bottom. Thus a slowdown based upon fear of a weaker economy does not really fit the historical scenario of business sentiment versus economic activity. You can argue that the buy backs are an indication of excessive bullishness similar to the M&A activity and Blackstone ready to go public. More than likely this is just a pause in a very hot investment cycle that has exceeded many historical runs. We are not likely, however, to see much change before the end of the summer. That will keep the pessimism high regarding the economy. Walls of worry. You have to love them (or else they drive you insane).
THE MARKET
MARKET SENTIMENT
VIX: 13.24; -0.22
VXN: 17.1; -0.59
VXO: 12.34; -0.34
Put/Call Ratio (CBOE): 1.04; -0.09. Another close above 1.0 as the indices trade positive. Likely some more covering
Bulls versus Bears:
Bulls: 50.6%. Big jump in bulls from 48.4%, continuing the rise from 46.6% and 45.5% before that. It has returned to the 50.5% level high a couple of months back though below 53.3% on the recent high. 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: 25.8%. Substantial drop from 27.5%, continuing the slide from 28.4% and 28.9% immediately before that. This bounce in the correction continues heartening investors and thus reducing bears. That strong jump higher from 26.9% and 24.2% last month is eroding but still well above the 20% where it held to start the year. 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: +8.36 points (+8.36%) to close at 2458.69
Volume: 1.827B (-10.09%). Volume faded well below average as NASDAQ continued its rise. With the holiday in progress and a 3-day weekend, many are out of town early.
Up Volume: 983M (-519M)
Down Volume: 483M (-36M)
A/D and Hi/Lo: Decliners led 1.14 to 1. Mainly the large caps were leading as breadth was negative despite gains in the index.
Previous Session: Advancers led 2 to 1
New Highs: 138 (-33)
New Lows: 32 (-29)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ scratched out a modest gain that took it just past the March closing high (2456). That is a higher high and does open the door to a run toward the February high up at 2532. Based on the strength of the Wednesday move, it is not going to get there soon. Note that late February gap lower that NASDAQ is approaching. NASDAQ will fill that gap at some point. It is trying to break free from the March high and start working on that gap. It is not out of the woods from that interim March peak, however, and a run higher from right here is not a done deal. MU's talk of bullish outlook may help techs tomorrow, but they likely won't fill that gap on this latest move higher.
SOX (+0.94%) recovered some from that dump down to some support at 460, leading the market Wednesday. It is still deep in its 5 month lateral consolidation but making a run toward the recent highs. MU could help the index buck up a bit Thursday at the open, and thus help techs higher early on as well. The MU earnings statement was pretty ugly but for the outlook. It may help MU some, but it could help other chips more given the added visibility and some improvement.
SP500/NYSE
Stats: +1.6 points (+0.11%) to close at 1439.37
NYSE Volume: 1.4B (-10.24%). Volume was lower, remaining below average this entire move. Not really leadership caliber but it is showing more upside trade on the upside days, and that is keeping the index showing some upside momentum.
Up Volume: 753.838M (-456.836M)
Down Volume: 622.872M (+296.505M)
A/D and Hi/Lo: Advancers led 1.13 to 1. Modest.
Previous Session: Advancers led 2.73 to 1
New Highs: 234 (-64)
New Lows: 21 (-1)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 added a pittance to the Tuesday move, but it pushed it past the March intraday high (1439). Nice pattern, good break higher Tuesday (though low trade), and now trying to drift higher to the prior high 1462. If it does continue just this drift it is going to have trouble as it approaches that old top. For now we let it make its drift and button up the hatch if it cannot show any more strength as it gets into the gravitational field of 1450.
The small cap SP600 (-0.04%) was the lone loser, but it was basically flat, coming back from a very modest downside tap intraday. It was never in danger, just took a breather as many of the smaller energy stocks rested after a good run higher. SP600 and SP400 (mid-caps) continue to sport the best patterns of the major indices.
DJ30
And another modest gain for an index as DJ30 eased higher on no volume. Similar picture though it did surpass the March peak Tuesday and added to that Wednesday. Not showing much strength for a run toward 12,796 (the old high), but this entire move showed a lack of strength. Nonetheless we are looking for DJ30 to follow along with the other indices as they take a swipe toward the prior high.
Stats: +19.75 points (+0.16%) to close at 12530.05
Volume: 210M shares Wednesday versus 220M shares Tuesday. Chronic lack of volume.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
The last session of the short week, and already we are seeing volume overall fade. There is still strong trade in individual movers, but that is always the case. Passover lightened trade, and Wednesday even more volume dried up as more left early for the long weekend.
Thursday will be even lighter. Sure MU stirred some interest after hours, but it was no landmark announcement. It has some other chips trading higher as MU's main contribution was noting a more bullish outlook. MU's quarter was horrid, but the additional insight is helping other chips.
If MU can buck up the market once more early on we are looking to use that to take some gain off the table ahead of the weekend. We have noted those we are looking at to do so in the continuing play table. After roughly a week of upside that saw the indices come back from the 50 day EMA and just beat the March highs, they are ripe for some profit taking ahead of the weekend. No since in not taking some of that gain ahead of the jobs report and the week ahead. If the market does continue the move higher toward the February peaks then we have some money in the bank and some money still working for us to put even more in our pockets.
As for new buys we will just have to see what the session produces in terms of strength in individual stocks. What we will be looking for is staying power as well as more than just token volume. There are still many good stocks in position to move higher, and if we see good moves we will take advantage of them. We are just not going to load up on positions Thursday, just continue adding positions at good entry points as they flat the 'buy me' sign.
Support and Resistance
NASDAQ: Closed at 2458.69
Resistance:
2460 is the March high
2468.42 is the November 2006 high
2471 is the December 2006 high
The July/August trendline at 2473
2509 is the January 2007 high
2520 is the December/January up trendline
2523 is price resistance November 2000
2531 is the February high (post-2002 high)
Support:
The 50 day SMA at 2439
The 50 day EMA at 2429
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 1439.37
Resistance:
1439 is the March high
1440 is the mid-January high
1444 from February 2000
1461.57 is the February 2007 high.
1465 is the late November to February up trendline
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 50 day EMA at 1420
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 12,530.05
Resistance:
12,623 is the mid-January high
12,700 is the early February peak intraday high
12,796 is the February 2007 and all-time high
Support:
12,511 is the March intraday high.
12,499 is the December intraday high.
The 50 day SMA at 12,451
The 90 day MA at 12,427
The 50 day EMA at 12,391
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): 1.0% actual versus 1.9% expected, -5.7% prior (revised from -5.6%)
ISM Services, march (10:00): 52.4 actual versus 54.7 expected, 54.3 prior
Crude oil inventories (10:30): 4.3M actual versus -846K prior. Gasoline -5M actual versus -1M expected
April 5
Initial jobless claims (8:30): 320K expected, 308K prior
April 6
Non-farm payrolls, March (8:30): 135K 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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