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world stock market, us stock market
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4/09/07 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Target hit alerts: None issued
Buy alerts: ADM; AGU; ITRI; NIHD; RIG
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 tries to stretch gains into new week but investors turn cautious ahead of earnings.
- Bonds jump on jobs report while some money supply reading rise: Fed can defend the dollar and that paints a better economic picture.
- China tariffs again: if China subsidizes their businesses, they subsidize US consumers as well.
- Earnings ahead, and expectations continue to decline. Upside surprise again?
Mixed trade as melt higher cools.
It was a Monday with no scheduled economic data, but there was no shortage of news. American Home Mortgage added the latest spice to the mortgage default pot when it warned of weakness in its overall mortgage business. Not just sub-prime, but its overall business. That did not seem to matter much, however, as the market focused on the stronger than expected Friday jobs report as well as some new M&A activity. The primary interest was the rumor that DOW was going private. Dow denied it but was up over 2 sticks anyway. Oil was lower, tanking 2.77 on the session to $61.51/bbl. Gasoline at $2.79/gallon nationally has been holding oil up after the UK/Iranian 'standoff' resolution ratcheted down geopolitical tensions, but even that lost some of its grip Monday as oil picked up speed as it slipped lower all session.
There were downers as well. AMD followed MU's lead and warned about its Q1 results, saying sales were 'sharply' lower. AMD is so downtrodden over the past year ($43 to $13) it actually gapped up in relief. Gasoline was up again as noted. Bonds tanked on the jobs report, pushing 10 year yields to 4.75%. More China tariffs are possible as the US readies to file WTO piracy claims. Those would normally put the stall on a move, but Monday stock futures rose even with those items in the mix.
Stocks did open higher but almost immediately were in defensive mode, selling back from the modest gap higher. NASDAQ fell 15 points from its open before catching a new bid that turned it back positive near the session high. That fading oil was no hindrance. An early afternoon test set a rebound into the close. The indices went according to script, at least until the last half hour. Another bout of selling hit late and that closed the market basically flat though mixed with large cap NYSE posting gains, buoyed by metals, transports, materials, coal, and chemicals, while techs closed lower. In short, it was much as we saw last weak, particularly with respect to leadership, but the indices could not advance the ball further as some selling entered here and their to pare the gains.
Technically there was the same leadership as last week as noted above. There was also more of that drift higher. The internals were overall weak once more with breadth flat, though volume quickened on both NYSE and NASDAQ. Still well below average, but stronger. That indicates some churn on both NASDAQ and NYSE, i.e. higher volume turnover where the buyers and sellers trade off positions with equal vigor. After a run higher such as the week of gains just logged, that can mean some giveback. With earnings coming down the pipe fast as well (AA reports Tuesday after the close), that suggests the usual, if not a bit heightened, level of scrutiny.
THE ECONOMY
Money supply and bonds continue helping the Fed.
Bonds rose Friday after the jobs report showed new jobs growth, continued revisions, and a stronger household survey (unemployment number). They rose Monday as well, screaming to 4.73% on the 2 year versus 4.75% on the 10 year (Thursday closed at 4.62% versus 4.68%). The short end really surged on the news, pushing the yield curve nearly flat again in one swoop.
That rise takes the heat off the Fed with its policy decisions. The Fed Funds rate is at 5.25%, and once more bonds are pushing toward that level, using the stronger jobs report as a reason to lower the chance of a rate cut any time soon.
The rising rates help with the dollar as well. The Fed has to balance the dollar's strength with its monetary policy because a rate cut means a weaker dollar. With rates rising on their own the Fed can defend the dollar some without having to second guess what the bond market is saying versus the Fed Funds rate the Fed sets. A stronger dollar is never bad for the economy. Despite what the Bush administration and its James Baker throwbacks think, no country has ever found prosperity at the end of a devaluation gambit.
It is not just rising interest rates, however. There is also money supply to consider. Yes, money supply. It has lost favor as an economic indicator the past 20 years (Greenspan's tenure), but despite the theories that try to explain away money supply's loss of importance, as seen with this inflation spat, keeping money supply too high even with increasing rate hikes still results in inflation. Greenspan refused to lower money supply growth and thus inflation refused to fade even as he hiked rates. Bernanke slowed money supply from 5% to 7% growth down to 2% and less, and that helped to drastically curtail inflation pressures.
Indeed, the Fed has continued to reduce money supply in its broadest measure even as it has paused with its rate hikes. We can thank that to the tenacious inflation Greenspan and the initial round of tax cuts helped engrain. On the other hand, MZM, the narrowest read of money supply and the one that measures the money available for actual transactions has grown from flat to 2% on up to 9% now. Before you conclude the Fed is fanning inflation, remember, MZM is the narrowest read of money and does not include all of the credit and other permutations of money as you move out from the center of hard currency. Thus, while overall money supply continues to grow somewhat anemically, the money used in transactions, i.e. getting goods purchased and deals done, is growing. That is a boon for transactions of all kinds as there is money available.
Thus the Fed can somewhat have its cake and eat it too. It can let rates rise naturally without having to beat the drum so hard yet assure foreign investors it is not going to have to cut anytime soon. They like that because that means they can park money in US treasuries and not worry about the Fed undercutting their positions with rate cuts. At the same time there is a growing amount of money available to fuel transactions and keep the gears of the economy moving. It is not a 100% pedal to the metal growth mode, but it is one that helps the Fed balance inflation expectations, growth expectations, and dollar strength better than it usually can.
More China restrictions sought.
The US announced it is going to seek more restrictions on China, this time with respect to copyright piracy. Right now there is no talk of tariffs, just cases going to the WTO.
Copyrights are always an issue. You ostensibly get protection in lands where there are governments that supposedly abide by the rule of law. Of course it is pretty well documented that China turns a blind eye to copyright protection, preferring to allow it to flourish as a cheap way to bring its civilization up to speed in the high tech world. Certainly it could do more to stop it. When pirated copies of Olympic gear started to show up on the streets of Bejing, they were gone overnight. That example shows China can effectively crack down when it so desires.
Of course, there is turning a blind eye to piracy and then there is institutionalized piracy such as that practiced by the EU. It is famous for standing in the way of mergers that would benefit US companies, and now it is adopting a rather thinly veiled strategy to require US manufacturers to unveil intellectual property in order to sell in the EU (e.g. the recent MSFT ruling to open key parts of its code to others, something those companies could not get here in the US). SUNW was unable to win this in the US where, even with watered down enforcement MSFT did not have to reveal certain key parts. We heard a comment from the SUNW CEO that was gleeful at getting from the EU what it could not get from the US. One wonders what tune he would sing if the shoe was on the other foot.
Piracy in no way benefits us here in the US. Once more we are subsidizing the rest of the world getting something for less than it is worth or getting it free. We do that with drugs researched and invented here in the US; that is why we pay so much for prescription drugs versus the rest of the world as we are subsidizing their low cost drugs. The companies are told if you are going to sell here you have to meet our price. Thus in order to recoup their costs in a reasonable timeframe we here in the US make up the difference. If you require the drug companies to sell to us at a lower price as well (and truly remove the free market from the drug business), then you will get less drugs. For a ready example look at Canada with its vaunted medical system. Since it has been nationalized not one new drug has been invented, this from the country that gave us insulin.
What about the subsidies.
What really steams the protectionists as well is the subsidies Chinese companies receive for their products exported to the US. That was the genesis of the 'glossy paper' tariffs just recently enacted. Do we really care as a nation of consumers if the Chinese government wants to waste resources subsidizing its paper and other businesses? The US consumer gets cheaper paper and then uses the money saved and more to buy an HP printer and a SanDisk memory card to print out pictures on that cheaper paper. Or how about the cheap Chinese DVD player sold at Wal-Mart that competes with domestic higher priced brands with the difference being used to purchase a handful of DVD's made here in the US?
The point: As a whole we benefit from subsidies as it lowers our cost of goods, ties up Chinese funds in practices that don't advance its ahead of us, and gives us more money to invest in technology or other industry here at home. When you multiply the effect by lower cost goods millions of times over the effect is staggering. Some research has put the number at near $3000 savings per year per household in the US. That is incredible. It is also much more beneficial to the US consumer than keeping the price of paper products higher for us while the rest of the world gets lower prices. We should laugh all the way to the bank if another country wants to subsidize their industries and sell to us cheaper. We can take that savings and use it to educate ourselves in areas other than glossy paper production and push technology further, turning the other country's poor choice to our advantage. Of course we subsidize industries to the tune of $35B annually here in the US, so any benefits we obtain we are immediately shooting down the hole here. Only in politics do you get such absurd results.
THE MARKET
MARKET SENTIMENT
VIX: 13.14; -0.09
VXN: 17.77; +1.02
VXO: 12.29; +0.24
Put/Call Ratio (CBOE): 0.78; +0.01
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: -2.16 points (-0.09%) to close at 2469.18
Volume: 1.777B (+11.04%). Volume was up but still well below average as NASDAQ gapped higher but closed flat. Unable to hold the gain as the sellers came in, but it was no hard sell off, just some churn as the buyers and sellers matched up in strength as the session wore on. Low volume on the way up, volume turning higher as it tried to extend but faded. Time to be careful here.
Up Volume: 944M (-217M)
Down Volume: 763M (+345M)
A/D and Hi/Lo: Decliners led 1.27 to 1
Previous Session: Advancers led 1.27 to 1
New Highs: 168 (+14)
New Lows: 63 (+13)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ gapped higher and opened at the July/August 2006 up trendline (now at 2480). It sold, rebounded, tested and rebounded again. By the close it faded to negative, failing three times to take out that trendline. Volume was up; still below average, but the rising trade after a low volume advance shows a bit of churn as the sellers came in and elbowed the buyers aside. Of course the buyers did not put up too much of a fight; the entire move except for last Tuesday was on lower, below average volume. It is still well below the prior highs (2500, 2532 in February) and the churn at the trendline is another test in the recovery off the March lows. There is still just sporadic upside volume, but thus far it has come at the key times. It will have a chance to show that again as NASDAQ pauses and tries to regroup for another run higher.
SOX (-0.60%) faded back to tap the 50 day EMA on the session low. It got off on the wrong foot AMD joining MU's prior warning, though INTC posted a higher volume gain in its continuing downtrend. Most big semiconductors, particularly those in the more traditional chip sectors, remain in technically weak patterns. Those in the growth areas such as wireless and communications tend to be in better shape and are providing the backbone in the 5 month lateral move, trying to bring the rest of the sector around. Trying.
SP500/NYSE
Stats: +0.85 points (+0.06%) to close at 1444.61
NYSE Volume: 1.26B (+1.11%). Volume was up on NYSE as well as they churned a bit as well after their week of gains. Overall volume was still very light, so it was hardly much of a churn just as the prior accumulation was not much in the way of accumulation.
Up Volume: 692.674M (-128.225M)
Down Volume: 530.036M (+123.536M)
A/D and Hi/Lo: Decliners led 1.03 to 1. The small caps were a bit of a drag.
Previous Session: Advancers led 1.58 to 1
New Highs: 295 (+53)
New Lows: 21 (+2)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 rallied early as well tapping at some resistance near 1450. It faded back from that level three times before some late selling pushed back in the lower half of the session range. After a week of gains that showed a tombstone doji on the candlestick chart. That is not the kiss of death for a move, it simply indicates the momentum is shifting a bit. With volume still very low it was not a seismic event in terms of change, just the low volume upside move running thin on momentum. Hit 1448 on the high, getting closer to that late February high (1462) but still well off pace on the session.
SP600 (-0.12%) struggled all session but lost just a fraction as it rested after showing the best technical action on the last move where it held up at near support on the lows and broke nicely higher early last week. May need a bit of a breather after the move off the near support, but as we have noted of late, it is showing the best technical action.
DJ30
Very similar action to SP500 on the Dow, climbing early then fading back for a modest gain, closing with a tombstone doji on the candlestick chart. Volume was up what with INTC and DOW volume jumping, but still well below average. After a week of gains the pattern suggests a pause here with possibly a test of 12,500 where there is support from December and January to give it the footing to try a move higher. AA reports Tuesday after the close; if it cannot make money in this environment . . .
Stats: +8.94 points (+0.07%) to close at 12569.14
Volume: 191M shares Monday versus 165M shares Thursday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Still no schedule economic reports, but we are going to hear some more Fed-speak, and there continues to be plenty of activity with analysts and companies as earnings season draws near.
Earnings season is causing a bit more pessimism than it has the past couple of years, but you would not notice it with the most recent move higher. Overall, the market remains in its correction; do you look at the most recent move to recover some lost ground or the correction that still has stocks below their February high? You look at the overall action and see that stocks have posted a modest double bottom, tested, and provided a follow through session, at least on NASDAQ.
Even with that overall positive picture, volume on the move higher has been lower than on the selling that started the correction. It usually is lower after the correction, but you at least want to see some above average volume thrown in on the way back up. This move back the past couple of weeks has shown average at best trade. Not a wholehearted endorsement of the rebound move. With earnings ahead and expectations for a weak season, the lower volume reflects the trepidation by many investors in that they did not buy into the move overall. Sure there are strong, high volume movers in certain sectors such metals and materials, but overall volume is lacking.
Earnings expectations have dropped markedly over the past few months from 11% to 8% to 5.5% and now down to 3.3%. Dramatic drop, and it is good to see. It leaves some room for an upside surprise. Pre-announcements, however, have swing from 3:1 positive a couple of quarters back to 3:1 negative this quarter. That argues against any upside surprise overall, but it is still possible. That develops over the course of the season, and you often see upside and downside as the season starts before the consensus is reached on the season and stocks adopt that trend.
With this rebound up to the start of the season, we have to be ready for some giveback as investors assess the first results and anticipate the next based on those. January started fast but then gave back all of the move those early earnings generated over the first two weeks of the month. With the current season at hand we have to go back to the overall weaker technical pattern to this point, at least with respect to volume. Techs could have a tougher season once again, and even the steel leaders could have some issues given so much good news is priced in. Look at energy; the results are variable even with high oil and gasoline prices.
That kind of environment and the expectations overall make for an interesting season and one we are almost inclined to sit out, i.e. closing a lot of positions. Thus far most have moved up nicely or are holding support, setting up for a move. We have many positions where earnings are not going to be an issue any time soon and with strong patterns we won't fret that much over them. Likewise with stocks that are showing strong upside volume on their runs we are less inclined to do away with those positions. We will keep a tighter rein on those that are not yet making runs, and as for those that are in the midst of runs you have to decide if you want to ride out the earnings ahead of the traditionally slower summertime period or just book the gain. You can always split the difference of course and take some off the table and leave some; there are few absolutes in the market because risk tolerances vary from investor to investor. We always like to bank some gain when we have it, particularly ahead of significant events. Thus we will continue to look for opportunity to take some profits while keeping some parts of strong positions to work for us further.
Support and Resistance
NASDAQ: Closed at 2469.18
Resistance:
2471 is the December 2006 high
The July/August trendline at 2480
2509 is the January 2007 high
2522 is the December/January up trendline
2523 is price resistance November 2000
2531 is the February high (post-2002 high)
Support:
2468.42 is the November 2006 high
2460 is the March high
The 50 day SMA at 2440
The 50 day EMA at 2432
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 1444.61
Resistance:
1444 from February 2000
1461.57 is the February 2007 high.
1467 is the late November to February up trendline
1475 from peaks in December 1999 and January 2000
Support:
1440 is the mid-January high
1439 is the March high
1432 is the December 2006 high
The 50 day SMA at 1426
1425 is an interim high from November 1999
The 50 day EMA at 1422
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 12,569.14
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 12,433
The 50 day EMA at 12,405
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 11
Crude oil inventories (10:30): +4.3M prior
FOMC Minutes (2:00)
Treasury Budget (2:00): -$85.0B expected, -$85.3B prior
April 12
Initial jobless claims (8:30): 321K prior
April 13
Trade balance, February (8:30): -$60.5B expected, -$59.1B prior
PPI, March (8:30): 0.6% expected, 1.3% prior
Core PPI, March (8:30): 0.2% expected, 0.4% prior
Michigan Sentiment, Preliminary, April (10:00): 88.0 expected, 88.4 prior
End part 1 of 3
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world stock market
us stock market
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