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4/10/07 Technical Traders Report Update
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Technical Traders Report Subscribers:
Full report issues Wednesday
MARKET ALERTS
Target hit alerts: ROCM
Buy alerts: SPWR
Trailing stops: ISRG
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 scratches out another gain as stocks continue to rise into earnings season.
- All for cutting pollutants to make us healthier, but the facts regarding the sun's cycles blow holes in global warming premise.
- Still riding the modest climb into earnings, preparing to take action.
Investors looking for another upside surprise as stocks rise on some climbing volume.
Pre-market was rather flat pre-market as DHR (homebuilder) warned that new orders were down by a third and the spring season was getting off to a very slow start. STX (disc drives) chimed in, warning it would miss on its earnings expectations. Citigroup announced it was cutting 17K to 26K job cuts, but C's convoluted structure left many wondering whether it was something positive for the market or just specific to C. It was more C-specific as it turned out a the financials rallied early but gave the moves back.
Oil was flattish (closed at 61.89, +0.38) and bonds recovered some though the yield curve retained its flatter aspect (4.70% two year versus 4.72% 10 year). Stocks immediately opened higher and rallied with NASDAQ pushing up to its July/August 2006 uptrend once again. There was the midday fade as usual as some Fed-speak came out quite hawkish on the need to control inflation. That helped along the fade through lunchtime. Bernanke speaks Wednesday at 1:00ET and we don't expect such a hawkish tone. Remember, even though Bernanke is the Fed chairman, we still look to what Poole says as he is the de facto spokesman for the Fed's real intentions. Bernanke has to say what a Fed chairman has to say to keep markets in order. As we have seen, Poole tells us what the Fed is actually going to do. Thus Bernanke, while often soothing, can upset the market as he did the last time he spoke before Congress.
The market traded around flat midday, but in the afternoon it recovered and pushed back up near session highs by the close. Volume moved higher as the market recovered, indicating investors, at least those in the market, are not blanching in the face of earnings. There is talk investors are looking for an upside surprise given expectations have plunged from the 11% range to 9%, to 7% to 5% and now 3.3% growth rates for the last quarter. Hmmm. Sounds as if there could be some disappointment ahead as investors hope for upside when things have clearly slowed during the mid-cycle slowdown. That means we need to ride this action as far as we are comfortable and then button things up again and see how this story plays out.
Technically the action was solid though not inspiring. The intraday tape was good, starting flat, rising, fighting off the midday slumps, then rising into the close. Low to high is always a sign of bullish intent. Breadth was decent (but only decent) and volume, while still below average, showed an upside bump. There was some accumulation in them thar' upside moves, but it was modest at best given that continued sub-average trade. Many stocks moved higher but there was not a lot of individually strong volume. Sure there were good movers on good volume, but there was no big surge of big volume movers. That said, leadership remains, and it remains in a lot of the same hands: steel, copper, iron, zinc, gold, energy, chemicals, medical, and even some tech (note INTC and the chip equipment makers).
Overall, however, the move remains broader than it is deep, i.e. more stocks are moving up on lower volume. That made new buys less plentiful on Tuesday even with the move higher: a lot of the action was concentrated in strong stocks we already own, and we were happy to ride them higher as those in the market drove prices up ahead of earnings. Again, many of the same leaders are getting the volume while overall the volume move is anemic. That means you have to be on the alert for trouble after this rise; the market struggles to scratch out gains, and just when you start feeling pretty good about the move the pendulum swings and a week or twos work can be cleaned out in a few days, particularly when there is a catalyst such as earnings. Thus we ride the move higher for another session or so, all the while locating the exits in the event a fire starts.
THE ECONOMY
Human global warming causation argument hits a serious snag: more facts.
We are all for steps to reduce pollution and make our country and world safer for all of us. There are great benefits from clean air and water and open spaces to decompress from the pressures of modern life. Those are not just personal benefits as well; it saves our economy billions with respect to healthcare costs avoided due to a cleaner environment. Those fixes were based on certain, quantifiable cause and effect, and the results were (and still are) readily tangible. Indeed, much of the cost associated with the added expense has been offset by the healthcare savings and in a boom in recreational use of waterways that were basically deemed 'dead' to life and human use (remember Lake Erie? It was dead to life in the 1970's).
There are also economic benefits in addition to cost savings. Let's say we decide that in order to get off foreign oil we really want to get serious about converting our vehicle fleet to another form of fuel. Yes we can try augmenting supply with ethanol, switch grass, and bio-diesel, and you can argue that any little bit helps just as the drillers argue that opening less than 1% of ANWR (Artic National Wildlife Refuge) would add a nice boost of reserves to lessen the impact of foreign oil shocks. If we want government to mandate how we proceed, why don't we take real action that will make progress on several fronts versus the piecemeal, grossly incomplete steps the Bush administration wants? If we are going to regulate and spend federal money to achieve the goal, lets think big. Lets put the money into hydrogen vehicles (vehicles are our biggest use of oil) and distribution centers (a.k.a. gas stations). That would give us positive health and environment effects (less air pollution, less pressure to drill in sensitive areas), it would take us off our foreign oil addiction and thus our vulnerability to shocks and the need to protect oil supplies, it would for all intents and purposes rectify our trade deficit by itself, and the R&D would surge us back in front of the world technologically, thus bringing those high tech jobs that raise our standard of living (versus tariffs to save paper and underwear jobs here in the US).
We are for that kind of reasonable use of federal dollars to accomplish goals IF you feel it is the Fed's job to handle this type of activity. The Constitution has definitely been stretched enough to make room as unpalatable as that may be to strict constructionists.
What we are not for is the kind of pseudo-science that cherry picks data or ignores salient data altogether in order to reach a predetermined conclusion and then demands that you and I fund it. Anyone disagreeing is shouted down. That is the unfortunate state of the global warming 'debate.'
For an interesting read that destroys the global warming argument by undermining one of its primary assumptions, see:
http://www.nationalcenter.org/NPA203.html
In sum it argues, using verifiable facts, that the earth goes through cycles of warming and cooling based on the sun's periodic changes in radiance. We have been going through a natural heating cycle after the last cooling cycle, a 'mini ice age' that ended in 1850. In that cycle the sun ended its cooling phase in 1715, and it took another 135 years to end the cooler period, i.e. after the sun started to warm back up and thus warm the earth back up. The cooling cycles follow about 300 years of warming; given the last cooling period for the sun ended in 1715, we are more likely on the cusp of another cooling cycle, not a rapid acceleration in warming.
The global warming proponents will argue that we are producing more gases and would upset even that balance of the sun warming and cooling. That simply does not jibe with the facts. For one, they assume a constant radiance in their models. NASA data shows that is not the case. Thus their general premise has to be scrapped and rebuilt with this data incorporated. If you look at the data, temperatures have risen 1.5 degrees F since 1850. One degree is due to the sun's change in radiance. 0.25 degrees is due to other causes, of which greenhouse gases MAY be one. Moreover, one degree of the increase in temperature occurred from 1850 to 1940. In the last 50 years temperatures rose 0.5 degrees. This is the period where the surge in greenhouse gases should have jumped temperature the most if the global warming theory is correct. Further, since 1979 temperatures have fallen 0.04 degrees.
What you are left with is a theory based on insufficient evidence and a leap to a desired conclusion based on a wholly faulty assumption. If this was a court case, positing such a flawed theory would be a colossal blunder as it would ripped apart by facts. Unfortunately, the world political stage is one where if you shout it loud enough and long enough you gain credibility. Thus, as is typical, government is getting involved based on those incorrect beliefs (any study of the economy and government response shows this problem) and after the worst of the problem is likely over. What will happen if the course we are taking continues is that we will adopt many stringent regulations that at best hamstring the economy and that 1) produce no measurable benefit, and 2) are not even necessary as the problem will, as is usual in nature and in markets, resolve itself. Just look at the housing problems right now. The market already found the issues with sub-prime mortgages and as a result lenders were cutting back. Now the government wants to jump in and further regulate the market. What will happen is the government will pass regulations that will inhibit lending AFTER the market has identified and corrected the problem, and those regulations will delay the recovery in housing that would occur more rapidly but for government restrictions that will linger well beyond any useful life.
It is absolutely amazing that Al Gore and the other celebrities can successfully pedal the greenhouse gas warming theory on a wholly insufficient review of all relevant, known facts. You can see this every day when pundits review the state of the economy. They cherry pick facts and draw conclusions regarding expansion or recession, unaware of or consciously ignoring the additional body of relevant factors. The planet is hotter no doubt, but if you don't know or ignore the facts as to why and you draw the wrong conclusion about where the planet is in the natural cycle and, more basic, what the cause is, your solution will be wrong. Gore sees an overheated planet, rising seas, famine, etc. due to global warming when instead we will most likely be worrying about issues related to crop growth in a cooler climate and wishing we had all of those trillions of dollars wasted on trying to prevent global warming to invest and spend on research to grow cooler climate feed plants and animals. An 'inconvenient truth'? It is hardly the truth and it is much more than inconvenient. If we head down this road we are attacking the wrong problem with the wrong solution at the minimum, and setting ourselves up for real trouble ahead when we need the money wasted for new R&D on feeding a hungry world in a colder, not warmer, climate.
THE MARKET
MARKET SENTIMENT
VIX: 12.68; -0.46. Fading back to the 200 day MA, in the range where it found support and bounced in the second half of March. That has roughly corresponded with some modest selling. After the run in stocks the past week a pullback is not out of the question.
VXN: 17.02; -0.75
VXO: 11.73; -0.56
Put/Call Ratio (CBOE): 1.11; +0.33. The ratio jumped up on an upside session driven by some speculation that downside is around the corner, some covering, and some put selling banking on further appreciation. It all adds up to more speculation about what will happen, and speculation is what you look for at market turns, whether intermediate or longer term.
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: +8.43 points (+0.34%) to close at 2477.61
Volume: 1.913B (+7.61%). Volume was up again, this time showing a bit of accumulation as NASDAQ posted a gain. Still below average so not a major shift to buying but buying nonetheless.
Up Volume: 1.024B (+80M)
Down Volume: 800M (+37M)
A/D and Hi/Lo: Advancers led 1.23 to 1. Very narrow once again as large cap techs (NASDAQ 100 gained 0.48%) led the move.
Previous Session: Decliners led 1.27 to 1
New Highs: 139 (-29)
New Lows: 50 (-13)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ moved higher on some rising trade, showing a bit of accumulation, primarily in the large cap tech sector as stocks such as INTC, KLAC, AMAT enjoyed high volume gains. NASDAQ bumped into and closed on the July/August 2006 up trendline once more, managing a gain though unable to punch through. As the trendline is rising, NASDAQ can rise with it and continue posting gains as it heads into earnings season and approaches prior resistance at 2500ish and 2532 (February high). The move is not a tower of strength. There is a breakout and a follow through move, as well as a recovery from a breakout test. Volume is still overall lacking on the move with no above average sessions since the follow through on 3-21-07.
SOX (+0.81%) was a laggard in the morning, but it did not sell off midday, instead starting a run that took it to close at the session high. Large cap chip stocks were some of the best performers in NASDAQ on Tuesday. Technically, the move held SOX over the 50 day EMA and put it just about square in the middle of its 5 month range. Not threatening much of a breakout but it did manage to make a higher low to put it in position to rise further.
SP500/NYSE
Stats: +3.78 points (+0.26%) to close at 1448.39
NYSE Volume: 1.331B (+5.61%). Volume was up for NYSE as well, but it was also very low, below average volume. Some accumulation? Yes, a bit. Anything serious? No. Still a very low volume rise with the last above average session in mid-March. Rallies build on small foundations and weak volume have a hard time holding up when stress is applied.
Up Volume: 806.899M (+114.225M)
Down Volume: 486.509M (-43.527M)
A/D and Hi/Lo: Advancers led 1.6 to 1. Decent.
Previous Session: Decliners led 1.03 to 1
New Highs: 269 (-26)
New Lows: 21 (0)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Volume rose modestly as SP500 posted its sixth gain in a row. SP500 is right at the early February high at 1450 where it could start struggling. The late February high (1462) is the next level after that. Anyway you slice it SP500 is now at some critical levels where the low volume is going to impact the move unless a catalyst, e.g. strong earnings, gives trade a push and thus pushes the index higher.
SP600 (+0.37%) posted a modest gain, pushing past the early February high and now is staring at the February high (also an all-time high) at 423.35. As noted before, SP600 and SP400 (mid-caps) are showing the best technical action of any main index given that energy and metals are driving much of the market move. They could lead a breakout to a new high for the market.
DJ30
Volume was up but the move was very modest as DJ30 continues to slow its move down considerably. It is also well below its prior highs, definitely not leading the market, just tagging along for now. Again, a test of 12,500 would set it up for a run higher, but again, it is following for now.
Stats: +4.71 points (+0.04%) to close at 12573.85
Volume: 214M shares Tuesday versus 191M shares Monday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
Bernanke speaks at 1:00ET and FOMC minutes at 2:00ET. Before that crude oil inventories are out at 10:30ET. Of course that release doesn't really matter according to the Bush administration. Though gasoline prices are $2.79/gallon nationally, approaching post-Katrina levels before the driving season starts and without any storm brewing (at least actual weather storm), the administration says that supplies are 'adequate.' Once more the Bush administration is going to hide behind the free market when it comes to gasoline supply and demand. Now we are for the free market, but let's face it; there is no free market in gasoline supply and demand because regulation has kept construction of refineries low and thus put us in the position we are in now, i.e. insufficient capacity to meet demand when everything is running, a situation exacerbated when a refinery goes off line for maintenance or worse suffers a catastrophic breakdown or a storm-related shutdown. When regulation skews the playing field it is an insufficient response to say the free market should fix the problem. The government has to get back into the game and fix the imbalance it caused, i.e. make it conducive to build new refining capacity.
Back to the market action, earnings are starting though they don't heat up until next week. AA beat the street after hours and was up nicely though hardly surging. RIMM and DNA report after the close Wednesday. There is upside momentum with some growing though light volume as the market runs toward earnings season. That may give it some further upside as the earnings come out as long as the initial results beat the street. Earnings season is typically up and down through its 6 week course, often choppy at the onset then settling in the chosen direction once the market sniffs it out and gets the lay of the land for the season.
This time around there is a correction and the indices have fought back and are at the cusp of testing the prior moves. Volumes remain low on the rebound, and as noted before, that makes the move a bit suspect. There is confidence as stocks move higher into earnings, indicated by the advance on some better though light volume. When you look at the relative volume levels, i.e. compare it to prior moves and the associated trade, the idea that a new rally will spring from this rebound is more like wishful thinking absent a big catalyst such as sharply stronger than expected results. Many times we have seen these kind of moves claw and scratch out a decent gain over two or three weeks, building confidence as they manage to overcome adversity and rise. Then they get a shot out of right field and they gains are mostly vaporize in a few sessions.
Thus we have to be ready to act if the market starts to stumble as it approaches those prior highs. We are enjoying the move higher and are letting the plays move up as well. We take some gain here and there as good moves are logged and we will continue to do so. The move will likely turn choppy as the first week of results come in as investors try to ascertain the gist of the earnings trend. There is always the possibility the market could jerk lower and then recover and continue higher. Given the rally into earnings within an overall correction and the low volume accompanying that rally, the conditions are rather primed for some kind of test lower. We would prefer to take our gain and protect other positions versus lose a good rally that turns into another deeper test of the prior correction low.
The question is when do you go ahead and pull the trigger. With the higher volume move Tuesday and the overall rally in anticipation of some upside surprise, we have let positions run into the start of earnings, anticipating another pop as the first results come in. We will use that to take more gain, and if positions start to stumble we will close more and then wait and see how the season shakes out. There is definitely potential for upside surprises given low expectations, but we cannot replace a low volume rise that shows a lack of deep support with the possibility of an upside surprise relative to the lowest earnings expectations in this expansion. Thus we are going to let it run as far as we can and then be ready to button things up. We are going to bird dog those positions that are candidates to close out if things start to struggle. They are basically positions that have not logged sustained moves yet. Doesn't mean they are clinkers, just that they don't have any cushion of gains built up to ride out any rough spots. If the market starts to roll over, however, you don't want to let your other positions with good gains run down either.
Support and Resistance
NASDAQ: Closed at 2477.61
Resistance:
The July/August trendline at 2481
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:
2471 is the December 2006 high
2468.42 is the November 2006 high
2460 is the March high
The 50 day SMA at 2441
The 50 day EMA at 2434
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
2331 is the March intraday low
S&P 500: Closed at 1448.39
Resistance:
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:
1444 from February 2000
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 1423
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
1364 is the March intraday low
1358 to 1362 mark a series of peaks from April 1999 to August 1999 high and the February
Dow: Closed at 12,573.85
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 12,453
The 90 day MA at 12,438
The 50 day EMA at 12,411
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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