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us stock market, trend trading stock
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1/24/02 Investment House Daily
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MARKET ALERT SERVICE
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SUMMARY:
- Relief bounce continues but indexes falter at resistance.
- Greenspan disappoints, saying again market is pricing in too much of a recovery.
- Jobless claims 'unexpectedly' fall once again.
- Team Trades
Relief bounce continues, but indexes give back most gains after hitting resistance.
All major indexes continued the bounce started Wednesday. The upside action was over in the first half hour, however. The rest of the session the indexes made lower highs, giving back a large chunk of gains though they never undercut the session's opening prices.
The Nasdaq moved over the 200 and 50 day MVA and ran up to the simple 50 day MVA on its high (1959.93). That was the peak, however. It spent the rest of the session moving lower, testing either the 50 day exponential or the 200 day MVA. In the end it held just above those levels but 17 points off of its high and just over the gap up point. That is a tombstone doji with the high at resistance; not a real bullish indication.
The Dow and S&P also rallied higher early, but they were unable to close over any of the key moving averages, instead pulling well off of the session highs that tapped right at or just beat the 50 day MVA. This was what we were expecting: a bounce and move up to resistance. If significant volume did not accompany that move, the distribution-weakened indexes would roll back down and once again test support.
Volume again higher but not blowout.
For the second straight session the indexes logged increased trading volume on an up session. That is typically what we look for when indexes move higher as it indicates that there are more net buyers than sellers in the market. That is what is needed: it takes more and more buyers to push stocks higher and higher. Wednesday was the first higher volume rise in over two weeks, and now there are tow back-to-back.
That looks good, but again even though volume increased, it was still rather mild on the Nasdaq (no 2 billion share day that markets the usual stronger moves) and not a big surge in buying on any index as compared to the recent selling. Further, some of the selling volume came late, meaning that not all of the volume was attributable to the upside.
It does show that the indexes are not giving up at these support levels easily; there are buyers coming in and picking up shares. Thus far, there have not been enough buyers to push the indexes past near term resistance. Again, we look for much stronger volume on any surge higher to show that buyers are really coming in.
Further, after a correction such as we have seen (10% on the Nasdaq before the last two sessions), we look for that follow through day 4 to 7 sessions later. That is where one of the big three indexes scores a 1.5% or better price gain along with a big surge in volume. That shows that the rally has some legs as institutions are back buying again and that the previous turn back up from the selling was not just a one-day wonder. This also helps keep us disciplined and keeps our eye on the ball; we don't get wild chasing plays or trying to stretch gains out, upside or downside, too far.
Greenspan does not change his tune much.
When the text was released there were some changes that mitigated parts of his prior testimony, and the market jumped up. It quickly melted away, and Greenspan's responses in the Q&A did not do much to build it back up.
It was a typical back and forth Greenspan session where he spent a lot of time not really giving much information. As for stimulus, he was 'conflicted.' He said that no stimulus was needed now though it would have been good 3 months ago. Then he said that we very well could need it in the near future. He said recovery was coming, and that was one of the bases for his statement that stimulus was not necessary right at this point in time. He then said the recovery may not be sustainable. His testimony was so careful and so couched with 'maybe,' 'possibly,' etc., it was difficult to take anything out of it other than he does not believe the economy is getting worse, but it could get worse or it could get better. The only thing he was fairly clear on was that he believed stocks had priced in too much of an economic snapback.
Greenspan has said in the past that it was his intention to keep everyone guessing about what the Fed is up to. It is clear from today's testimony that hiding the ball is still his game even after six rate cuts that contributed in large part to send the economy into recession. He was playing with us then and he is playing with us now with his six one way, half a dozen the other answers to questions. Part of the problem is that both sides of the Congress want to use his words to beat the other side over the head; thus Greenspan is very careful with his words. Problem is, we get no real insight as to what is going on. Nothing new, but with his track record, maybe our leaders deserve a little bit more candor in answering direct questions. Six ill-timed rate hikes that helped crash the market and the economy and his late response to a collapsed market and investment cycle deserve some answers, answers we have never received. Based on the questioning and his responses, those are answers we will never hear.
Of course, when financial stations refuse to cover the most important financial story of the day (Greenspan's Q&A before the Senate Budget Committee), we can see why he gets away with it. Just when the Greenspan questioning was getting serious, the stations cut away to cover testimony on the Enron hearings. Interesting perhaps, but the hearings were not going to move the financial markets. ENE is no longer a financial story; it is not even trading on the NYSE. If the financial press, the self-styled watchdogs of those that impact the markets, do not care enough to broadcast the Fed chairman's answers about stimulus, taxes, surpluses, deficits, rate hikes, and other fundamentals of the financial world, Greenspan has a free reign. That is exactly what he has had over the past four years as he drove the economy and stock market into the ground, tried to bail it out too late, and was then heralded as a maestro for these actions. Reward mediocre or downright poor performance. That is what we are coming to.
THE MARKET
A further bounce up turned at near term resistance. The gains were still decent and on slightly stronger volume. They could make another run at them; without more volume triggered by some perspective that stocks are at good values at this point, breaking over them and holding will be tough.
Secondary indicators: Volatility and the put/call ratio are sentiment indicators. They are thus contrary indicators (typically moving inversely with the market) and are most useful at extreme levels. They take a back seat to price and volume, but they can give us a heads up or a caution flag so to speak ahead of time. That is why we keep an eye on them.
VIX: 22.99; -0.70. Volatility again pulled back on the gains, continuing the low levels that indicate it will be hard for any rally to sustain itself. Normally we would not be too worried about this, but the distribution days prior to the last tow up volume sessions focus attention on volatility as well.
VXN: 47.07; -1.25. Down as well on the Nasdaq, back near the summertime range. As with the VIX, the low level of volatility on this mild upside bounce does not indicate long legs on this upside move.
Put/Call Ratio (CBOE): 0.46; -0.04. Another drop on the continued move higher. The ratio is getting closer to that 0.40 level that indicates real complacency in the market. After spending most of the past several months near 0.70 or higher, this is a significant drop, and it indicates that there is more afoot than just a trading range or a slight pullback as several are advocating.
Nasdaq
The Nasdaq gapped over the 200 day MVA (1935.36) on the open, rallying to the simple 50 day MVA on the high (1959.93) early in the session. It rolled over, tested the exponential 50 day MVA (1940.76), and then later tested the 200 day MVA. It held and was able to close just over the exponential 50 day MVA. The gap to a doji and close well off the high is not a good sign to us.
Stats: +20.20 points (+1.1%) to close at 1942.58.
Volume: 1.909 billion shares (+2%). A second day of higher volume, but not sharply higher buying is taking place. It is much better than distribution, but it is not big buying volume.
Up volume: 1.312 billion (-0.030 billion)
Down volume: 533 million (+23 million)
A/D and Hi/Lo: Advancers continued to lead at 1.33 to 1, dropping further from Wednesday's 1.55 to 1 ratio. Not a powerful move compared to the strong selling last week and earlier this week.
New highs: 104 (+22)
New lows: 23 (-15)
The Chart: http://www.investmenthouse.com/cd/$compq.html
The Nasdaq gapped higher, rallied further, but then sold back almost to the open price. This etched out a tombstone doji on the candlestick chart, a bearish signal of potentially near term selling. On the high the index hit the 50 day MVA (simple) and retreated. It managed to hold above the exponential 50 day MVA (1940.76) on the close (and thus the 200 day MVA as well at 1935.46), two important levels. It was not able to hold over the March 2000 down trendline (now at 1940), but it is trying to break through the top side of the November consolidation range (1941 top). The increased volume on two up sessions is encouraging, but at this point after a 10% fall you cannot say a trading range has been established or it is going to move higher. Indeed, there is not much to change the view that it has sold off on worries of a weaker recovery, rebounded a bit on attempts to reassure the markets, and is set up to move back down because nothing has really changed with respect to the economic view. Indeed, companies are not offering definitive upside guidance for Q1. At this point we still view downside action as the course of least resistance and expect a further test. After hours Nasdaq futures were down 14 points on some more so-so earnings numbers with respect to the future.
Dow/NYSE
The Dow ran up over 100 points, but could not take out the 50 day MVA before falling. It may give it another run; it is still trying to put together a rally above 9700, and volume was right at Wednesday's level, trying to support the move.
Stats: +65.11 points (+0.75) to close at 9796.07.
NYSE Volume: 1.490 billion shares (-0.13%). Just fractionally below Wednesday's volume, but still not showing a surge of buying activity.
Up volume: 905 million
Down volume: 581 million. Down volume moved up on the second up session in a row.
A/D and Hi/Lo: Advancing issues led but fell to 1.26 to 1 (1.7 to 1 Wednesday). Not nearly as strong as the decliners when the index was selling.
New highs: 117 (+20)
New lows: 17 (-19)
The Chart: http://www.investmenthouse.com/cd/$indu.html
Made a further move off of 9700, but after tapping the 50 day MVA (9876.52) on the high (9856.97), the index made a series of lower highs, giving back half of its session gains. As with the Nasdaq, all of the upside action was over in the first hour. It still is holding at the 9700 level, and it may take another run at the 50 day MVA, even 10,000 (the latter we view unlikely), but it is now showing the strength it needs just now. The A/D line is meek, volume is strong but not expanding on buying. If the index rolls over anywhere from today's high to 10,000, that sets up a head and shoulders that gives us the test lower.
S&P 500: Very similar to the Dow. The big caps ran up to the 50 day MVA (1137.65) on the high (1139.50), but it too gave back half of its gains on the close. The candlestick chart shows a tombstone doji as does the Nasdaq candlestick. That is a potentially bearish pattern that could lead to near term selling, particularly as it turned back at resistance. As with the Dow, a rollover from here or up to 1150 sets up a head and shoulders pattern. Combined with the poor volatility, poor put/call ratio, poor price/volume action, and struggle at resistance, it looks downside. It may make another run up from here before it turns lower again. Of course, as soon as everything looks one way, it upsets your plan. That is fine, but that is not what the market is telling us right now.
Stats: +3.97 points (+0.4%) to close at 1132.15.
Volume: NYSE volume was slightly lower, holding right at Wednesday's level (1.490 billion shares; -0.13%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Friday comes and the economic story is existing home sales out one-half hour into the session. Will it move the market? Not much. Today weekly jobless claims came in, you guessed it, lower than expected at 376k (400k expected), the lowest in 6 months. That is a continued showing that the economy is trying to bottom, and it matches past patterns when pulling up out of downturns.
That did not hurt today, but it did not provide a lot of upside impetus. We have seen improving economic numbers for months now, but the market is struggling at the moment. Why? Uncertainty about the strength of the recovery, the realization that no stimulus is coming (that was priced into the market to a certain extent), the Fed chairman saying the recovery won't be as grand as stock prices seem to indicate. There has to be something to change that mindset. It does not appear as if that is going to happen tomorrow.
Thus we are not looking for a lot tomorrow. We continue to watch to see where the breakdown is going to come. Will there be another run up to resistance or did it cap out the move today already? Nasdaq futures are down, and we can see softer opens give rise to rallying later. The market has not been acting bullish of late despite the two relief bounce rallies the past two sessions. Certain stocks are acting well and will continue to do so, but we still believe the overall market is ready to pullback further unless there is a significant change in the view toward the future by the institutions. They have to start buying stocks again in big volume, not selling them in rising volume.
The indexes made it a bit harder for themselves today by failing to hold onto most of their gains in the face of overall good news. Now they have reinforced resistance and have to fight all over again to make headway. They may make another run at it tomorrow, but we doubt they will be successful.
Support and Resistance
Nasdaq: Closed at 1942.58.
Resistance: The 50 day simple MVA (1960) held today on the high. It is still not totally clear of the exponential 50 day and the 200 day MVA (1940.76 and 1935.36, respectively) and the tops of the November consolidation (1934 to 1941). After that is 2000 and then the December intraday high at 2065.69, followed by the January intraday high at 2098.88.
Support: The bottom of the November consolidation (1875). After that point, 1800 at best. As noted 1750 would be a 50% retracement. Support at that level looks to be anywhere from 1700 to 1750.
S&P 500: Closed at 1132.15.
Resistance: The 50 day MVA (1137.65) held today, and there is resistance on up to 1150. After that the 200 day MVA is at 1166.46. The December high (1173.62) and January high (1176.55) all line up as strong resistance.
Support: 1125 is still holding. After that is 1100, the tops of the November consolidation range. That is followed by a range of support from 1075 to 1050, the 1050 level holding twice in October. That is right at the 50% retracement.
Dow: Closed at 9796.07.
Resistance: The 50 day MVA (9876.52) again checked the upside. Then 9992 to 10,000. After that the 200 day MVA (10,105.42).
Support: 9750 to 9690 has held firm thus far. From here it gets dicey all the way down to 9500, a level of good support. After 9500 there is a very congested trading range from 9125 to 9500. A 50% retracement is 9181.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
1-22-02
Leading Indicators, December (10:00): +1.2% actual versus 0.7% expected and +0.8% prior (revsed from 0.5%).
Treasury Budget, December (14:00): $26.6B actual versus $24.0B expected and $32.7B prior.
1-24-02
Initial Claims, 1/19 (8:30): 376K actual versus 400K expected.
1-25-02
Existing Home Sales, December (10:00): 5.16M versus 5.21M prior.
TEAM TRADES
Today we were looking both directions again.
BLL: On the Stock Split Report, a mix between a pre-split and 50 day MVA bounce. The idea here is to catch onto some momentum on the split announcement from this winner and ride it higher. It had moved up its 18 day MVA, making 5 bounces. It sold back and just undercut the 50 day MVA, and then stated to rally Wednesday on strong volume. We were ready to jump in today when it cleared a bit of resistance, and it was moving on good volume when it did. Now the idea on this play is to capture the momentum, but the stock has come off the 50 day MVA after a low volume pullback, and if it resumes its trend of bouncing up the 18 day MVA, we will let it work for us. On these type of plays, we see the move, get in, let it run and then take the money off the table.
BBX: This was a more 'standard' play on the Daily so to speak, a breakout of a cup with handle pattern in the savings and loan sector. Financials are holding up better than the rest of the market, a signal that the economy is actually improving. Anyway, BBX spent the first two hours moving more or less laterally at the 10.20 to 10.25 level. Volume was decent. Then some massive volume came in and the stock bolted toward the buy point at 10.32. It hit that on a run to 10.60. We were able to get an order in and a fill for some shares at the 10.49 ask; it was moving fast. Now we sit back and look for our move up to net 20% or better.
End Part 1 of 2
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us stock market
trend trading stock
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