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day trading, Breakout test
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4/16/07 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Target hit alerts: None issued
Buy alerts: DRIV; EDU; MS; NTGR
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:
- Volume quickens its pace as the SP's blow through the February highs.
- Retail sales hold strong, but also bolstered by timing, gasoline price hikes.
- As Fed minutes dilute its last rate statement, bond curve inverts again.
- Still problems with the move, but fighting it is like cursing the weather.
New highs for the S&P's
Once more the good news continued to push stocks higher as a new batch of data gave investors renewed optimism about the economy versus the worries that facilitated the February and March selling. Retail sales were stronger than expected (0.7% versus 0.4%) and that helped get the futures heading higher. Earnings were again stronger than expected with C, LLY, MAT, ETN, and others beating the street. M&A was active once more with the GOOG acquisition of Doubleclick, SLM's takeout, and CCU's suitors upping their antes. Greenspan even got in on the action, downplaying the possibility of a recession induced by a weakened sub-prime mortgage market.
It was a good mix for more upside, but the earnings were a big part of the driver. As you recall, Q1 earnings expectations dropped sharply in the weeks heading into the season, down from near 10% to 8%, 5% and then 3%ish. The worries about the economic slowdown were really taking the air out of earnings expectations. Thus when the earnings late last week and then on Monday came in stronger, the buyers jumped back in. This is the kind of catalyst we discussed as able to change the course of the market, and on Monday at least, it was doing that.
Indeed, the news and the buying it spurred pushed SP500 to a new post-2002 high as it cleared the February watermark. SP600 and SP400 (small and mid-caps) not only cleared the February highs, but notched new all-time highs as well. Energy, metals, materials, and meds have led the move, but Monday that spread out to financials (boosted by the C earnings), internet, and technology. You want to see a move spread out as new highs are hit as that indicates it is more than just a few large cap names pushing the market.
Technically the prices were all higher but it was still a mixed move. Strong breadth on both NASDAQ and NYSE showed that broad advance characteristic of stronger moves. There were the new psot-2002 highs on S&P indices. Volume was up on NYSE, pushing up to average on the session. Hardly blowout volume, but it was in the league of last week's Wednesday distribution volume. Breakouts, as noted above, came from more areas than just energy, metals and materials as the internet, financial, wireless and other technology stocks broke higher.
Still the move was not clear and convincing evidence the market is fully recovered. NASDAQ volume tracked in lower than Friday and significantly lower than the prior Wednesday distribution session. That put many of the tech moves in the low volume category and indeed kept us from chasing more than a few of the tech movers. That still leaves the move somewhat suspect, but as we noted in an afternoon alert today, you can find faults with the move, but doing so is a lot like cursing the darkness because it is moving up whether you like it or not, feel it is warranted or not. Once more you do what the market says, not what you feel it should do.
THE ECONOMY
Retail sales rise and February is revised higher.
0.7% beat the 0.4% expected, and February was revised sharply higher to 0.5% (from 0.1%). Ex-autos was strong as well at 0.8% versus 0.7% expected and 0.4% in February (revised from -0.1%).
The raw numbers appear to show a stronger consumer, and it is evidence that the consumer has not slowed significantly. Still, the building and garden supply retailers posted a 1.4% adjusted gain, something some of the pundits dispute given the wicked weather and the housing slowdown. Also, gasoline sales price increases made up a big chunk of the gain what with the national average rising 7.4 cents to $2.88/gallon. That is up $0.58 over the past 2 months. For reference, that is up 9.3 cents from a year ago (showing how well supplies had come off of late) and it is already above the EIA's forecast summer peak at $2.81/gallon.
When you look at the stats you see that this point in time is typically a higher price time for gasoline as the refineries switch over from heating oil production to gasoline, and also suffer some down time from maintenance performed at the changeover. Thus prices bump higher but then drop off as the production ramps up. Certainly there have been plenty of outages and down time the past quarter as refineries are pushed past their limits. Thus prices are even higher than typical right now, and we can expect some declines in price over the next month . . . if there are no more outages or plant closures.
Bond yield curve inverts once more.
When the Fed removed 'additional firming' from its policy statement the bond market, and indeed many financial markets, viewed that as increasing the likelihood the Fed was indeed ready to stand down permanently, or at least as permanent as the Fed can be. With the Fed off of the financial markets' backs there was some optimism that the expansion would continue and that a Fed-induced recession was off the table. After a year of inversion the bond curve reverted, the skies cleared, flowers started to bloom again.
Then the Fed speakers said they were serious about inflation fighting still, but the market did not believe them. Then the minutes from that meeting came out and it was clear that the Fed was in fact still very concerned about inflation, but felt it would lose credibility if it ignored the economic data that was showing a slowdown. So it changed the statement to fit the times and spurred a rally in stocks and got the bond curve right (or at least no longer inverted).
When the Fed was back on the table, the bond curve started worrying once more about too much Fed action and on Friday the 2 year moved back over the 10 year yield. That continued Monday with the two year edging the 10 year at 4.75% to 4.75%. Not much of an inversion, but well off the 7 BP reversion it enjoyed for that moment in spring after the Fed changed its statement. My flowers have not totally stopped blooming, but they have lost their zest.
THE MARKET
MARKET SENTIMENT
VIX: 11.98; -0.22
VXN: 16.44; -0.4
VXO: 11.25; -0.26
Put/Call Ratio (CBOE): 0.8; -0.16
Bulls versus Bears:
Bulls slid and bears rose, a positive development after the converse last week threatened to derail the improvement. Is this enough to sustain a new move? If you were looking just at this indicator, no. Before the last significant market bottom back in August 2006, bulls fell to 36% in late June. Bears rose to 36% as the two kissed before going their separate ways once more as the market started to rally. They are still over 20 points apart, and that is not what new bottoms are made of.
Bulls: 49.5%, down from 50.6%. Fading back a bit though still above the 48.4% two weeks back, and that was up from 46.6% and 45.5% before that. Could be a double top building in as it hit 50.5% level a couple of months back though below 53.3% on the recent high. Bulls bottomed last summer near 36%. That is the lowest level since September 2006.
Bears: 27.5%. Solid jump in bears from 25.8%, putting it right back to the level hit two weeks back though down from 28.4% and 28.9% immediately before that. 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).
NASDAQ
Stats: +26.39 points (+1.06%) to close at 2518.33
Volume: 1.847B (-7.5%). Volume was lower than Wednesday, Thursday or Friday, falling well below average as NASDAQ gapped higher and rallied right up to the February closing high. Not an overwhelming affirmation of the price move.
Up Volume: 1.345B (+136M)
Down Volume: 469M (-137M)
A/D and Hi/Lo: Advancers led 2.52 to 1. Solid breadth as NASDAQ moved up toward the last high in February.
Previous Session: Advancers led 1.7 to 1
New Highs: 254 (+84). Improving but needs to get better if a breakout occurs.
New Lows: 30 (-10)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ gapped over any resistance at 2500 and gave the February closing high (2525, 2532 intraday) a nod. It did not bang into that level and break on through; it didn't really have a chance. Nice price move, definitely up there with the rest of the market, but the volume was sorely lacking. This leaves NASDAQ still in a difficult position overall from a point of support for the move, but the sellers that showed up last Wednesday have stepped aside and allowing the buyers, though of limited number, to pus the index higher. It has its own test of the February highs ahead, the same one that the S&P indices passed on Monday.
SOX (0.33%) lagged all session, basically unable to put together anything positive as a whole. There were some strong moves such as with WFR, but they were few in the chips as overall the remain mired in a 6 month lateral trading range.
SP500/NYSE
Stats: +15.62 points (+1.08%) to close at 1468.47
NYSE Volume: 1.553B (+9.95%). Volume ran up to average, matching last Wednesdays selling volume. Not a huge surge, but more than enough to take the NYSE indices to new highs.
Up Volume: 1.242B (+327.887M)
Down Volume: 295.452M (-182.344M)
A/D and Hi/Lo: Advancers led 2.65 to 1. Very solid breadth as the indices broke higher. It was not just energy but the financials were there as well.
Previous Session: Advancers led 1.51 to 1
New Highs: 405 (+164). Very respectable new highs, and you would expect that with the triumvirate of the S&P indices breaking over the October 2002 highs.
New Lows: 15 (-1)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 is trying to jump back into the November/February channel with this big move over the February high (1462). With this move, is the channel all that important? It can be; many recoveries have stalled at a former channel, but with the higher volume, breadth, and financial stocks coming back to life we are simply going to give the move the credit it is due. The break over the prior high on volume, good breadth, and with leadership is about all you could ask for.
SP600 (+1.32%) had the best pattern and it put in the best move as it broke to a new all-time high. It was not just energy and metals Monday, but stocks from a wide variety of sectors pushing, and that broke the small and mid-caps to new all-time highs.
DJ30
The blue chips rallied on stronger but still below average volume as they, similar to NASDAQ, rallied up close to the prior high (12,796), falling a day's work short of that level. Not leading, but steadily climbing higher; a good follower on this move.
Stats: +108.33 points (+0.86%) to close at 12720.46
Volume: 225M shares Monday versus 224M shares Friday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Okay, so what is next? CPI, that's what is next. The PPI was palatable and even positive in some respects. The CPI will have to follow to help keep this new break higher set with upside fuel (along with more better than expected earnings), and that is not all that clear right now. There is deflation in flat televisions, computers, and other electronics, but there is too much data suggesting inflation is more than just a bump right now. ECRI inflation data has not reversed course, but it is waffling a bit.
The market will thus watch CPI closely as well as new earnings that are going to start coming rapid fire for the next two weeks, The initial response is positive, but the season is long, and initial pleasure with stocks beating expectations can wear off; so too can the better than expected earnings. As we said, it is very early in the season.
That said, this move speaks for itself, though it does speak with something of a forked tongue given the lack of volume on NASDAQ and more generally on the upside moves. As noted earlier, we can find many reasons to complain about the move, e.g. lack of upside volume, too short of a base to support a sustained rally, still too extended to run far. Problem is, complaining about it doesn't stop it. Feeling the move is too far along does not stop it. The market does what it does despite how absurd that may seem to us. Thus in the final analysis we always have to do what the market says to do. Thus if stocks move on volume we buy in. We still have our issues with the move, but a little bit of skepticism keeps you on your toes. There is more big news Tuesday and earnings season is still very young. Reason to be on your toes and also watching the market cues.
Support and Resistance
NASDAQ: Closed at 2518.33
Resistance:
2523 is price resistance November 2000
2530 is the December/January up trendline
2531 is the February high (post-2002 high)
Support:
2509 is the January 2007 high
The July/August trendline at 2497
The 10 day EMA at 2474
2471 is the December 2006 high
2468.42 is the November 2006 high
2460 is the March high
The 50 day EMA at 2442
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 1468.47
Resistance:
1470 is the late November to February up trendline
1475 from peaks in December 1999 and January 2000
Support:
1461.57 is the February 2007 high.
The 10 day EMA at 1446
1440 is the mid-January high
1439 is the March high
The 18 day EMA at 1438
1432 is the December 2006 high
The 50 day EMA at 1427
1425 is an interim high from November 1999
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
Dow: Closed at 12,720.46
Resistance:
12,796 is the February 2007 and all-time high
Support:
12,700 is the early February peak intraday high
12,623 is the mid-January high
The 10 day EMA at 12,554
12,511 is the March intraday high.
12,499 is the December intraday high.
The 90 day MA at 12,456
The 50 day EMA at 12,439
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
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
April 16
Retail sales, March (8:30): 0.7% actual versus 0.4% expected, 0.5% prior (revised from 0.1%)
Retail ex-auto (8:30): 0.8% actual versus 0.7% expected, 0.4% prior (revised from -0.1%)
NY Empire State PMI, April (8:30): 3.8 expected, 10.0 expected, 1.9 prior
Net foreign purchases, February (9:00): $58.1B actual, $80B expected, $98.8B prior (revised from $97.4B)
Business inventories, February (10:00): 0.3% actual versus 0.3% expected, 0.2% prior
April 17
CPI, March (8:30): 0.6% expected, 0.4% prior
Core CPI (8:30): 0.2% expected, 0.2% prior
Housing starts, March (8:30): 1.5M expected, 1.525M prior
Building permits, March (8:30): 1.515M expected, 1.532M prior
Industrial production, March (9:15): 0.0% expected, 1.0% prior
Capacity utilization, March (9:15): 81.9% expected, 82.0% prior
April 18
Crude oil inventories (10:30): 678K prior
April 19
Initial jobless claims (8:30): 320K expected (like the weather forecast in the summer: hot and 20% chance of rain), 342K prior
Leading economic indicators, March (10:00): 0.1% expected, -0.5% prior
Philly Fed, April (12:00): 3.0 expected, 0.2 prior
End part 1 of 3
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day trading
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